Getting all bidders in the same tent

The dynamics of every transaction differ, but the goal in any takeover remains the same: The target tries to get the best deal possible for all its security holders.

One way the target attempts to meet that goal is to get all potential acquirers in one tent, a system that’s meant to provide a sense of control and direction to the overall process. In other words, get everybody playing by the same set of rules and armed with access to the same data set (with more data provided as the process develops) to allow a winner to emerge over time.

The challenge is how to fit a hostile bidder into that neat process. Hostile bidders aren’t usually the most welcome guests, given that they turn that way after plans to acquire the target are thwarted. Accordingly there’s often lots of bad blood which it seems can be assuaged if the hostile bidder is prepared to pay up.

And that does happen, as in early 2016 when Suncor upped the consideration enough to convince the shareholders of Canadian Oil Sands to part with their stock.

And in late 2016, when Chemtrade Logistics Income Fund’s original hostile offer for Canexus Corp. turned friendly when another $0.15 per share (or 10 per cent) was added. Along the way to that resolution, the path was dotted with regulatory hearings and all sorts of inflammatory language. (Oslers was on both transactions: it acted for the target in the former deal and the bidder in the latter.)

In the end the highest offer wins because the target’s board carries out its fiduciary duty.

Such a challenge now presents itself at Dominion Diamond Corp., which owns the Ekati diamond mine and 40 per cent of the Diavik diamond mine. The company is now in plays thanks to a decision reached to launch a strategic review, its second in the past year. “We are open to exploring all strategic alternatives,” it said Monday, adding the alternatives “could include the sale of the company or other strategic transactions.”

That announcement came about eight days after the privately held Washington Cos. went public with its discussions with Dominion Diamond. Those discussions lasted about a month and ended two weeks back.

The bidder said it made a proposal to acquire Dominion at US$13.50 a share. It also agreed to “reasonable accommodations,” including a partial standstill, no unsolicited offer, and no proxy contest. But discussions apparently fell apart because Washington wouldn’t agree not to disclose its proposal.

Enough is enough said Washington so it went public — but seemingly not with that much animosity.

Given that it’s best to have the Washington Cos. as part of the regular process, what’s next?

A Washington Cos. spokesperson said “no comment,” though presumably it will see how things play out and keep its options open.

As for whether Washington will participate or not, one market participant said for its previous acquisitions it has never gone hostile and has never entered an auction. Clearly it prefers to negotiate privately — and then announce a deal.

(To add a little flexibility, Washington and Dominion could have announced a deal and added a “go shop” provision where the seller could have sought out a higher bidder — even if that’s not a perfect “market test.”)

For its part, Dominion Diamond said, through a spokesperson, that it will run an “open process.”

The heat is on the special committee and the board to ensure that all potential bidders are included in the review so that security holders do as well as they can.