Baffinland Iron Mines Corporation
(10 pages of text)
Partners in Nunavut Iron Ore Acquisition Inc. (Nunavut), an entity that had been set up to bid for control of Baffinland Iron Mines Corporation (Baffinland), are forced to respond to a rival bid. Baffinland owned the Mary River project, one of the most significant iron ore reserves in Canada, and had been trying to develop the project since 2004, but the number of prospective mining and financing partners declined following the onset of the global financial crisis in 2007. Baffinland’s share price tumbled as a result of its inability to move the project forward, falling from over $4.68 in October 2007 to $0.17 cents in 2008. In September 2010, sensing an opportunity to pick up an asset at a distressed price, Nunavut, backed by a private equity firm in the United States, had sparked a bidding war for Baffinland against ArcelorMittal, a Belgium-based steel company.
This case can be used in an 80-minute MBA or senior year undergraduate class that examines the combination of the core principals of finance with strategy. Students must determine the value of Baffinland and attempt to estimate what this asset might be worth to ArcelorMittal. Then, given a lack of capital, students must determine what alternatives Nunavut has to counter the offer from ArcelorMittal and what ArcelorMittal is likely to do next. The case examines potential synergies that strategic buyers can include in their valuation and also any limitations that a strategic buyer has in comparison to a financial buyer as well as the use of financial instruments such as warrants or royalties to make up for a shortfall in capital.
Mining, Quarrying, and Oil and Gas Extraction
Canada, Large, 2010
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