Grupo Mexico SAB must return USD 1.3 billion in shares to Southern Copper Corporation for forcing the unit to overpay for a Mexican mining company, a Delaware judge ruled.

Southern Copper bought 99% stake in Minera Mexico, a company owned by Grupo Mexico, in October 2004 for USD 3.75 billion higher than a previous valuation of USD 3.1 billion. The transaction was unfair, Delaware Chancery Court Chief Judge Leo Strine ruled. He said that a focused, aggressive controller extracted a deal that was far better than market.

According to court documents, Southern Copper shareholders sued on behalf of the company claiming that it overpaid because directors and a financial adviser failed to derive a true value for Minera and instead relied on a relative analysis when comparing the two companies.

Mr Juan Rebolledo Grupo Mexico spokesman said that the company will appeal the ruling. Grupo Mexico, which owns about 80% of Southern Copper is in total disagreement with the court’s ruling. The form to make the payment to compensate Southern Copper still needs to be set by the court.

Mr Strine said that a special committee of Southern Copper directors made strenuous efforts to justify the 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.

He said that the special committee turned the gold it was holding in trust into silver and did an exchange with silver on that basis, ignoring that in the real world the gold they held had a much higher market price.

(Sourced from Bloomberg.net)