By Melissa Pistilli-Exclusive to Silver Investing News

On Tuesday, shares of MAG Silver Corp. [TSX: MAG] [NYSE-A: MVG] climbed 13 per cent after the world’s biggest primary silver producer, Fresnillo PLC announced its takeover offer for the Vancouver-based junior miner. The senior silver producer is offering MAG US$4.54 a share for complete ownership.

Earlier this year, Fresnillo purchased a 19.8 per cent stake in MAG, its joint venture partner on the Juanicipio deposit in Mexico. Currently, MAG owns 44 per cent of the Minera Juanicipio silver mines and Fresnillo, the project operator, owns the remaining 56 per cent. According to Fresnillo, the property contains 237.8 million ounces of silver supply, which puts MAG’s 44 per cent interest at 104.5 million ounces.

The bid has been made through Fresnillo’s subsidiary, Fresbal Investments Ltd. On Monday, Fresbal CEO Jaime Lomelin sent a letter to MAG president and CEO Dan MacInnis requesting the company complete and deliver a valuation so that Fresnillo can then mail its offer to MAG shareholders.

“We have given considerable thought to the price that we are prepared to offer for the MAG shares and have no intention of amending the price based on discussions with MAG or based upon the results of the formal valuation. That said, we would be happy to discuss the timing of the logistics of the bid process with you at your earliest convenience, so as to ensure that MAG shareholder may receive this liquidity option in the most timely manner,” wrote Mr. Lomelin.

Fresnillo said the $4.54 a share offer represents a 12.3 per cent premium to MAG’s 20-day volume weighted share price. But, Raymond James analyst Bart Jaworski has said the bid is “opportunistic” and “significantly undervalues” MAG, whose shares have traded as much as US$16.09 on the AMEX and C$15.90 on the TSX this year.  “We encourage long-term investors to reject the offer and buy shares of MAG-TSX on budding buy-out potential and exploration upside at Juanicipio and Cinco de Mayo,” he said.

MacInnis is also taken aback by Fresnillo’s lowball offer. “This may be the first time in history that a hostile bidder has announced a bid at a price lower than the closing market price of the target’s shares on the trading day prior to announcement. Analysts and a number of shareholders are now calling this a “take-under” offer,” said MacInnis. “We are a little mystified by Fresnillo’s actions, but our Board understands its fiduciary and other obligations and will respond more formally in due course. In the meantime, our shareholders have no need to do anything to respond to the Fresnillo announcement.”

Contrary to earlier reports, MAG said Thursday that is has not had any discussion with Fresnillo about a potential buyout. According to the junior miner, Fresnillo made a “number of potentially misleading statements.” Primarily, MAG is objecting to the claim that “there was extensive pre-bid contact” between the two companies. MAG states that any discussions with its partner have been strictly about “operational matters” concerning its joint venture.

Mergers and Acquisitions to heat up in 2009

Many industry analysts have pointed to the inevitable surge in merger and acquisition activity as the economic downturn makes low-cost junior miners much more attractive to senior producers.

“The increasing valuation gap between the senior and intermediate producers and the junior explorers/developers suggests to us that M&A activity will likely heat up going into 2009,” said Dundee Securities.

Under the current credit conditions, exploration and development-stage juniors are finding it difficult to raise the capital necessary to start mining silver. And with share prices tumbling, those juniors with promising or proven properties are looking mighty fine to senior miners wishing to come out on top once the economic downturn begins to reverse.

With senior mining companies doing little exploration these days, cash-strapped juniors that have found appealing resources will become increasingly prone to takeovers, said Tom Whelan of Ernst & Young Canada.

In Canaccord Adam’s Junior Mining Weekly report, analysts have reported that currently “there are excellent opportunities [for mergers and acquisitions] in this current negative environment for those companies bold enough to act.” Canaccord’s analysts expect that senior miners with well-stocked treasuries will be initiating mergers or outright takeovers of the “best of the best” in the junior mining sector; especially now that they can snatch them up at half price.

Possible takeover targets

Several junior silver miners have been identified by industry analysts as possible takeover targets:

Andina Minerals Inc. [TSX-V: ADM]

Aquiline Resources Inc. [TSX: AQI]

Bear Creek Mining Corp. [TSX.V: BCM]

Candente Resources Corp. [TSX: DNT]

Minera Andes Inc. [TSX: MAI]

South American Silver Corp. [TSX: SAC]

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