ISS sides with top Turquoise Hill investors in dismissing Rio takeover

Oyu Tolgoi open pit has been producing since 2012. (Image courtesy of Turquoise Hill.)

Institutional Shareholder Services Inc. is urging investors of Turquoise Hill Resources to reject Rio Tinto Group’s proposed takeover — siding with criticisms from top shareholders that the deal undervalues the company behind one of the world’s biggest copper mines.

ISS recommended Turquoise Hill shareholders vote against Rio’s cash offer to acquire 49% of the stock it doesn’t own for C$43 a share, the firm said Friday in a report. The deal values the stake in the Montreal-based miner at about C$4.24 billion ($3.1 billion).

“While the offer provides an escape from the immediate downside, certainty of value today comes at a cost that is too high to be tolerated,” ISS said, adding that the severity of the downside risk is outweighed by the magnitude of the discount to net asset value implied by the offer. “As such, support for this offer is not warranted.”

ISS’s position is contrary to Wednesday’s recommendation by another advisory firm, Glass Lewis & Co., which urged shareholders of the Canadian miner to support Rio’s proposal. Two top shareholders — Pentwater Capital Management and SailingStone Capital Partners — have come out against the deal, arguing it undervalues the company.

At stake is Rio Tinto’s control of Mongolia’s Oyu Tolgoi project, which is expected to become the world’s fourth-largest copper mine. Rio already owns 51% of Turquoise Hill, but more than half of the remaining shareholders must back the acquisition for the deal to proceed. The Oyu Tolgoi mine is a joint venture between Turquoise Hill and the government of Mongolia.

Shares of Turquoise Hill dropped as much as 3.9% Friday in Toronto. The stock was down 1.6% to C$39.36 as of 10:42 a.m. local time.

(By Scott Deveau and Yvonne Yue Li)


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