Southern Copper Corp. (SCCO:US), the largest producer of the metal in Peru and Mexico, postponed a planned bond sale after the Delaware Supreme Court upheld a $2.03 billion judgment against parent company Grupo Mexico SAB.
Southern Copper had planned to sell 10- and 30-year bonds as soon as this week, according to people familiar with the transaction who asked not to be identified because they weren’t authorized to speak publicly on the matter.
A lower Delaware court ruled last year in a lawsuit filed by the Grupo Mexico unit’s shareholders that it overpaid for a 99 percent stake in Minera Mexico. The Court of Chancery in Wilmington held in October that the 2005 transaction was unfair and based on a flawed analysis.
Shareholders claimed in the so-called derivative suit that the subsidiary paid too much because the company’s directors and financial adviser Goldman Sachs Group Inc. (GS:US) failed to derive a true value for Minera, instead relying on a relative analysis when comparing the two companies.
The unit paid $3.75 billion for Minera, higher than a previous valuation of $3.1 billion. The court said Grupo Mexico must return $1.3 billion in shares plus interest to Southern Copper, formerly Southern Peru, for forcing it to overpay for the Mexican mining company.
“A focused, aggressive controller extracted a deal that was far better than market,” Chancery Judge Leo Strine wrote in his ruling last year. The analysis “obscured the actual value of what Southern Peru was getting and that was inclined toward pushing up, rather than down, the value in the negotiations of what Grupo Mexico was seeking to sell.”
In its decision Aug. 27, Delaware’s high court upheld Strine’s ruling, and a total judgment of $2.03 billion plus attorney fees of more than $304 million.
Southern Copper and Grupo Mexico officials didn’t immediately return calls seeking comment on the ruling.
Southern Copper shares fell 0.9 percent to $32.24 at 2:55 p.m. in New York trading. Grupo Mexico dropped 0.3 percent to 39.44 pesos in Mexico City.
Goldman Sachs and a special committee of Southern Copper directors made “strenuous efforts” to justify the Minera deal by optimizing Minera’s cash flows, discounting the fact that the Mexican company had trouble paying its bills, and agreeing to pay a special dividend, Strine said in his decision.
Goldman Sachs spokesman Michael DuVally declined to comment on the ruling in an e-mail.
At the time of the transaction, Minera Mexico held the world’s second largest copper reserves after Chile’s state-owned Codelco. Minera was experiencing strikes at its Cananea and La Caridad units in Sonora state, Mexico’s largest copper mines, and had a net debt of $1.06 billion.
The case is In Re Southern Peru Copper Shareholder Derivative Litigation, CA961, Delaware Chancery Court (Wilmington).
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