Taseko board on hot seat

In the seven plus years since the Supreme Court ruled on the planned going- private transaction at BCE, the roles of directors have become more complicated.

While the court relieved directors of their duty to maximize shareholder value in the context of change- ofcontrol transaction, the directors are now required to consider the interests of all stakeholders.

A live transaction is playing out on that topic, a transaction that became a t ad more complicated Thursday. The transaction concerns Vancouver- based Taseko Mines Ltd., which, a month back, received a request from five- per- cent shareholder Raging River for a meeting. Raging River had issues about the conflict posed by those directors affiliated with the privatelyheld Hunter Dickinson Inc., as well as the underperformance of Taseko’s shares. It also put four nominees up for election.

Taseko, which recently filed a lawsuit against the federal government seeki ng damages concerning t he non- approval of its New Prosperity Project, responded and set a May 10 meeting date.

Thursday, Taseko released information it said showed Raging River had muddied the waters because it had been buying a “large position” in Taseko bonds. Taseko said the undisclosed stake had a face value of $ 21.8 million — four times its equity stake. The bonds, that mature in 2019, carry a 7.75- per- cent coupon. They trade at $ 53 per $ 100 face value.

In Taseko’s view, the dissidents’ financial interests were “now severely at odds with shareholders,” adding “this matter raises serious questions about whether Raging River hopes to profit from its bond ownership at the expense of Taseko shareholders in the event Raging River’s nominees are elected.”

Taseko based that argument on two factors:

❚ If Raging River’s nominees are elected and if those nominees “can cause the Company to undertake certain kinds of transactions,” then its bonds “would rank in priority ahead of shareholders for repayment and cash distributions;”

❚ And if the nominees were successful and asset divestitures occurred, “the cash proceeds would have to be used to repay other debt holders ranking ahead of the bonds, and therefore would enhance the value of the bonds at the expense of growth initiatives that might benefit shareholders.”

That’s all good stuff — indeed a fair summary of the conflict between debt- and equity- holders — even if it could be construed as fearmongering given the hurdles Raging River has to clear. Taseko’s argument is that Raging River, as an equity-holder, has less to gain than it does as a debt- holder — should it win.

So how do directors respond, given that bondholders want full repayment and given that equity- holders, who have had a tough ride, are presumably waiting for the upturn in commodities?

If the directors’ duty is to act in the best interest of the company and to consider all stakeholders, then is Taseko’s plan of staying the course the right approach? Would Taseko stand a better chance of survival if it were de-leveraged?

Thursday, Raging River said that it “built up a bond position as an alternative strategy for participating in the turnaround of the company and provide protection from the current board’s continued mismanagement and self- i nterested decisions.”

In an email, Raging River said, “like Taseko’s other largest shareholders we hold both shares and bonds. We are one of the largest shareholders of the company and hold more shares than all of the board members combined.”

WE ... HOLD MORE SHARES THAN ALL OF THE BOARD MEMBERS.