Analyst: Take Royal Gold's offer; Airvana shares up on bid; risk-taking returns to hotel deals

By Cristal Cody

Tupelo, Miss., Dec. 18 - Precious metals company Royal Gold, Inc. said it will acquire International Royalty Corp. in a C$749 million offer, and one analyst said Friday that investors should "take the money and run."

Also on Friday, shares of Airvana, Inc. gained 21.63% after the mobile broadband hardware and software producer said it will be taken private in an all-cash deal valued at $530 million.

In other situations, the $307 million cash acquisition of Interstate Hotels & Resorts, Inc. signals potential action after a two-year hiatus in the hotel sector, an analyst said Friday.

Meanwhile, Wall Street ended on a positive note Friday.

The Dow Jones Industrial Average rose 20.63 points, or 0.20%, to 10,328.89.

The Standard & Poor's 500 index increased 6.39 points, or 0.58%, to 1,102.47, and the Nasdaq Composite index closed up 31.64 points, or 1.45%, at 2,211.69.

Deal assumes robust gold prices

Under the terms announced Friday, Royal Gold said International Royalty shareholders can choose a payout of C$7.45 in cash, 0.1385 of a share of Royal Gold or a combination for each share.

International Royalty's board recommends shareholders vote in favor of Denver-based Royal Gold's offer over the unsolicited C$6.75-per-share bid made earlier this month by Toronto-based gold royalty company Franco-Nevada Corp.

The Englewood, Colo.-based global mineral royalty company's management and a major shareholder holding 26.8% of outstanding shares have agreed to support Royal Gold's proposal, which is expected to close in February.

"The transaction value to our shareholders reflects the result of a rigorous bidding process that began several weeks ago," International Royalty's founder, chairman and chief executive officer, Douglas B. Silver, said in a statement. "Combining the assets of these two great companies will build a giant mineral royalty company with significant growth potential."

Royal Gold said the cash required for the acquisition will be sourced from available and unrestricted cash and committed credit facilities totaling $225 million.

The deal includes a $32 million termination fee payable to Royal Gold if a superior offer is accepted.

Kerry Smith, an analyst with Haywood Securities Inc., told Prospect News on Friday that Royal Gold's bid is more than fair.

"I would take the money and run. The price they're paying is a pretty good price," he said. "To get the valuation they're paying, they have to assume pretty robust nickel and gold prices, higher than where they are today," he said.

Franco-Nevada could increase its offer, but in addition, it would have to pay International Royalty's $32 million break-up fee.

"So that's a deterrent," Smith said. "Franco-Nevada didn't put their best bid on the table, but I don't think that what they're prepared to pay will be much more than where we are today."

International Royalty shares gained 27 cents, or 3.95%, to close at $7.10.

Royal Gold shares increased by $1.13, or 2.40%, to $48.13.

Shares of Franco-Nevada rose 0.15% to C$26.14.

Airvana to go private

Airvana said it will be acquired by a newly formed company called 72 Mobile Holdings, LLC that is owned by affiliates of S.A.C. Private Capital Group, LLC; GSO Capital Partners LP; Sankaty Advisors LLC; and ZelnickMedia.

The group will pay Airvana shareholders $7.65 a share in cash, an offer that represents a premium of 23% over the company's closing stock price of $6.24 on Thursday.

Shares closed up $1.35, or 21.63%, at $7.59 on Friday.

The acquiring group has secured committed financing that includes a combination of equity from the investor group and debt financing led by GSO Capital Partners LP.

Airvana said a special committee established to review the Chelmsford, Mass.-based company's strategic alternatives approved the terms.

The deal must receive approval from Airvana shareholders and regulatory clearances.

As of Dec. 11, Airvana said its directors and executive officers hold 56% of the company's outstanding stock.

In a conference call with analysts on Friday, Airvana executives declined to release many details of the deal, deferring details until the proxy statement is released.

"We expect we will have full support from shareholders," Randy Battat, president and CEO, said on the call. "Based on a review of the current business and risk factors in the business, the special committee believes the current transaction represents fair value."

Jeffrey Glidden, Airvana's chief financial officer, said on the call that the company expects the deal to close "in the March timeframe."

Return to hotel deals

Interstate Hotels & Resorts, the nation's largest independent hotel management company, said Friday that it will be acquired by joint venture Hotel Acquisition Co., LLC.

Hotel Acquisition is an equally split joint venture between private equity fund Thayer Hotel Investors V-A LP, sponsored by Thayer Lodging Group, and Shanghai Jin Jiang International Hotels Group Co. Ltd.

Under the terms, the company will be purchased for $2.25 a share in cash, which represents a premium of 77% over Thursday's closing stock price of $1.27.

Arlington, Va.-based Interstate Hotels & Resorts owns interests in 232 hospitality properties in 37 states as well as Russia, India, Mexico, Belgium, Canada, Ireland and England.

"We believe the price fairly captures the underlying long-term value of the company and appears to be a favorable outcome for shareholders," David Loeb, an analyst with Robert W. Baird & Co., said Friday in a research note released to Prospect News. "Should the arbitrage spread remain narrow, we recommend selling shares in advance of the deal's closing next year. We believe the $2.25 sale price is fair, and see little likelihood of a topping bid."

Interstate's lenders have approved the transaction subject to certain paydowns at closing on its senior credit facility and on one of its non-recourse mortgage loans.

"While IHR was in default on its credit line, its lenders chose to work with the company, providing time to come up with a better solution for all," Loeb said. "IHR's circumstances might classify the sale as distressed, but we believe a return of risk-taking in the hotel space is likely a positive for the sector as a whole. The IHR sale is the first corporate hotel M&A we have seen since late 2007."

Annapolis, Md.-based Thayer Lodging Group is a privately held real estate investment company. Shanghai-based Jin Jiang Hotels, China's largest hotel group, is a subsidiary of Jin Jiang International Holdings Co. Ltd.

Interstate's board of directors has unanimously approved the offer. Stockholders will vote on the proposed transaction at a special meeting, and the merger is expected to close in the first quarter.

Shares of Interstate Hotels soared to close up 94 cents, or 74.02%, at $2.21 on Friday.

Mentioned in this article:

Airvana, Inc. Nasdaq: AIRV

Franco-Nevada Corp. Toronto: FNV

International Royalty Corp. Amex: ROY

Interstate Hotels & Resorts, Inc. NYSE: IHR

Royal Gold, Inc. Nasdaq: RGLD

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