Pan Am is offering to acquire Minefinders Corp. in a stock and cash deal valued at $1.5 billion. Pan Am shares (TSX:PAA) sank more than eight per cent Monday after the announcement, while Minefinders (TSX:MFL) gained about 24 per cent.
Minefinders operates the multi-million ounce Dolores gold and silver mine in Mexico, which would be added to Pan American's mines in Mexico, Peru, Argentina and Bolivia.
"The transaction clearly establishes the combined company as the world's leading primary silver producer," Pan American CEO Geoff Burns told a conference call to discuss the deal.
Although UBS Investment Research analyst Chris Lichtenheldt said the deal is a good fit strategically for Pan American (TSX:PAA), he said the acquisition is about five per cent dilutive to its net asset value. His US$33.50 share price target for Pan American is under review.
Under the deal, Minefinders (TSX:MFL) shareholders would receive 0.55 share of Pan American and $1.84 in cash for each of their shares if the maximum amount of cash is chosen, or $15.60 in cash subject to a $176 million cap.
The offer represents a premium of about 36 per cent to the closing price of Minefinders shares on Friday, prior to the takeover announcement.
The idea of a combination had been kicked around for several years, with Pan American and Minefinders talking about it seriously early last year, Burns said on the call.
Minefinders CEO Mark Bailey said his company hasn't entertained offers other than the one from Pan American, though it has always had an "open door policy."
"We're not in the process of putting ourselves up for auction," he said. "We go forward and we feel we have a compelling offer from Pan American, and so we've come to the point of today with our announcement."
Pan American, which operates mines in Mexico, Peru, Argentina and Bolivia, said the acquisition will allow it to diversify geographically and help it double silver production to 65 million ounces by 2015.
"The transaction moves us into new tier, and clearly positions Pan American as the leading diversified silver producer," said Burns.
On closing, existing Minefinders shareholders would own about 33 per cent of Pan American.
Pan Am stock was off $2.06 to $22.96 around mid-day on the Toronto Stock Exchange while Minefinders shares were up $2.78 or about 24 per cent to $14.28.