HudBay / Lundin: Worth $25M to Turn Deal Down?

 |  About: Hudbay Minerals Inc Ordinary Sh (HBM)
by: FP Trading Desk

If HudBay Minerals Inc. (HBMFF.PK) shareholders quash the deal to buy Lundin Mining Corp., the company may have to suck up a sizable break fee. According to Blackmont Capital analyst George Topping, it would be money well spent.

Over the long weekend, HudBay announced that its shareholders will vote for or against the deal on March 25, in compliance with an Ontario Securities Commission ruling that requires both HudBay and Lundin shareholders to approve the deal.

Lundin Mining Corp. shareholders have already overwhelmingly approved the proposed takeover and Lundin recently stated that it will go after HudBay should the deal fall through and demand a $25 million break fee.

"The Lundin statement is encouraging as it suggests the company may not sue for damages outside of the termination fee," said Mr. Topping in a note to clients.

"We believe a lawsuit would not succeed as HudBay management fulfilled its obligation to close the deal and could not have foreseen the regulator's intervention. For HudBay shareholders this is a small price to pay for cancelling a highly dilutive transaction. Indeed, even the break fee may be disputed."

Mr. Topping maintained his "buy" recommendation and target price of $7.20 on HudBay shares. The stock was down almost 3% to $5.25 on Tuesday morning.