Winspear Diamonds Inc -
Winspear gains valuable time
Winspear Diamonds Inc WSP
Shares issued 51,634,088 2000-07-25 close $4.56
Wednesday Jul 26 2000
by Will Purcell
The management of Winspear Diamonds Inc. has won the first round of its battle for control of the potentially lucrative diamond deposit at Snap Lake in the Northwest Territories. The hostile bid for all of the outstanding shares of Winspear, announced by De Beers in late June, was due to expire at the end of this week, but a series of legal exchanges now appears to have bought Winspear at least three additional weeks to pursue several courses of action, all designed to thwart the takeover.
De Beers made its formal $4.25-per-share offer for Winspear on July 6, which allowed just 21 days for the company's shareholders to make their decision, the minimum period of time permitted. Winspear formally countered the De Beers 37-page offer to purchase on July 17, with a 33-page director's circular of its own, recommending rejection of the offer.
Once the offer had been mailed, the directors of Winspear quickly commissioned an updated scoping study, which was released on July 11. Two days later, De Beers retaliated with a lengthy critique of that study, and the company's vastly increased mineable tonnage estimates. That jab elicited a quick, but lengthy squawk from Winspear in an open letter to its shareholders, lambasting the commentary provided by De Beers.
With the preliminary unpleasantries out of the way, Winspear escalated the battle last week. The company had said it had identified deficiencies in the offer, adding it had been granted a hearing before the B.C. Supreme Court. The main issue surrounded Winspear's U.S. shareholders, who would not be eligible to tender their shares to De Beers pursuant to the offer. Nevertheless, De Beers had stated its intention to use the compulsory acquisition procedures to acquire all the remaining shares, should at least 90 per cent of the shares be tendered through the offer. Winspear contended that De Beers would not have this right, as the offer was not open to all shareholders, and the company intended to ask the court to order De Beers to correct the offer and mail it anew.
De Beers quickly snapped back, citing unspecified deficiencies in the Winspear circular. De Beers filed an application with the B.C. Securities Commission, presumably requesting suitable remedies for the unmentionable deficiencies. As well, the company said it would be asking that the Supreme Court order that the Securities Commission hear Winspear's challenge, rather than the court itself. It was a strange manoeuvre for De Beers, as it seemingly ensured that there would be an extension in the offer deadline.
That extension was quick in coming. On Monday, De Beers and Winspear announced that both parties would drop their requests for hearings, and De Beers agreed to extend the offer deadline to August 15, an additional 18 days. In return, Winspear agreed to waive the company's shareholder rights plan, effective August 14. On the surface, at least, the deal seemed like a compromise between the two warring parties. De Beers Canada senior vice-president, Tom Beardmore-Gray, said that his company was happy with the deal, especially the waiving of the rights plan. "We are pleased about that," he said, adding that shareholders now had a clear deadline.
A closer examination of the deal suggests that Winspear appears to have won at least a minor victory through the delay and has given up next to nothing in return. Although the company agreed to waive the shareholder rights plan, it is likely that De Beers would have been successful in challenging the plan in less time than the agreement appears to have bought. Winspear president, Randy Turner, said that the time taken by securities commissions to set aside rights plans seemed to range between 35 and 45 days from the day of offer, and the under the terms of the agreement, 49 days will have elapsed prior to Winspear waiving the plan.
Companies hoping to fend off a hostile takeover have frequently adopted shareholder rights plans, but there are no known instances where such a plan has actually been successfully carried out and at best, the plans are used as a stalling tactic. It is a curious phenomenon that securities commissions routinely declare such a plan, previously approved by shareholders, to not be in the ultimate best interest of those same shareholders.
Regardless, Winspear appears to have achieved the maximum mileage possible from its shareholder rights plan. The company has gained another three weeks to further its exploration program that continues at a frantic pace. Winspear vice-president, John McDonald, said that there were now five drills turning on the Snap Lake property, and he said that additional rigs might well be brought in. "We will get a few holes done," Mr. McDonald said, adding that they would provide additional data for shareholders to base a decision on. How many additional holes will be completed is anybody's guess, but the number certainly will be much larger than a few, and the mineable tonnage could again be significantly expanded, should Winspear's drilling luck continue to hold.
With the deadline for tendering now slated for mid-August, the next two weeks are likely to see several announcements from Winspear, as part of its value recognition program. The company is also expected to announce the caustic fusion results from the 35 holes completed this spring. Those results are apparently now in Winspear's hands and are currently being analyzed. The diamond counts are not likely to provide any major surprises, but continued consistency in the stone counts might provide shareholders with a bit of added comfort concerning the grade projections for the nearly 20 million tonnes of kimberlite that have recently been added to the global tonnage estimate.
Meanwhile, three short weeks will not be enough time to receive the results of the bulk sample program currently under way. Although those results will not be available until later this fall, the company may nevertheless be able to make a few preliminary comments available to shareholders about the underground mining conditions being experienced. The access has now been driven about 800 metres and is on schedule, according to Mr. Turner. He described the underground mining conditions as "very good," adding that there were no water or other problems encountered to date.
The extension of the deadline also provides more time for interested third parties to evaluate the Snap Lake data. The possibility of a white knight making a competing bid has been the subject of a number of unfounded rumours, although Winspear has stated that it has been approached by a number of companies expressing interest. Clearly, the additional time gained would allow for any interested party to complete a much more detailed due diligence investigation, prior to making any decision.
Although Mr. Turner continues to promote the possibility of a competing bid, it is no secret that he would prefer to maintain the status quo, developing a Snap Lake mine as an independent Canadian company. It is a tune that is falling on receptive ears. Speaking with CBC radio on Tuesday, author David Duval described the hostile bid as a "classic David versus Goliath fight," and the fight has evoked patriotic fervor among some of Winspear's more vocal Canadian shareholders.
Ironically, it may be the company's U.S. shareholders that end up deciding the matter, as the offer specifically excludes them. No formal reason was offered as to why the offer was not being made in the U.S., and Mr. Beardmore-Gray, declined to comment further, but it is widely speculated that the exclusion stems from the company's antitrust difficulties in that country. Indeed, the De Beers Canada Web site offers a clue. In a disclaimer, the company states: "It is not intended that any business should be transacted in the United States of America as a result of the information provided by this Web site. Neither the Corporation nor any of its associated companies will respond to enquiries from that country." Such a position would appear to make it difficult indeed to open the offer to U.S. citizens.
Although some of those U.S. shareholders expressed disappointment that Winspear had apparently dropped what they saw as the company's fight to have the offer extended to them, it is highly unlikely that such a move was ever Winspear's intention. Mr. Turner acknowledged that the board of directors had a fiduciary duty to all its shareholders, but he noted that it was the clear recommendation of the board that all shareholders reject the offer, regardless of their residence. As a result, it would seem inconsistent with that recommendation for the company to lead a fight to have the offer extended to all shareholders.
The exclusion of U.S. shareholders appears to severely hamper the bid by De Beers, who have stated that they require that a minimum of 50.1 per cent of all the shares be tendered. Winspear directors and insiders hold just over 11 per cent of the shares, and Jim Pattison is believed to hold another 9 per cent. The number of shares held by U.S. residents is not known, but most estimates place U.S. ownership at about 10 per cent. As a result, De Beers would have to acquire over 70 per cent of the remaining shares, which may well be a tall order, given the current market sentiment. Mr. Beardmore-Gray declined to speculate on what would happen if less than the required number of shares were tendered, adding that the company was hopeful that the bid would be successful as it stands.
The news of the agreement was apparently viewed as positive by Winspear investors, as the stock jumped 21 cents on Monday, to close at $4.58, a healthy premium to the $4.25 offer price. The stock continues to trade at a premium, closing at $4.44 today as the market speculates that the chances of a white knight emerging have improved.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com |
