Dominion Diamond in play
TORON TO • S hares of Domini o n Di a mond Corp. jumped almost 23 per cent after billionaire Dennis Washington went public with a US$ 1.1 billion offer for the Canadian company after weeks of private talks hit an impasse.
Closely held Washington Cos. made the proposal to acquire Toronto- based Dominion Diamond f or US$ 13.50 a share on Feb. 21. Dominion’s board has stalled on the offer, Washington Cos. said in a statement Sunday.
The bid carried a 36 per cent premium to Dominion’s closing price on Friday.
The stock rose 22.98 per cent to close at US$ 12.20 in New York Monday.
Washington Cos. has interests in mining, marine and rail transportation and heavy equipment distribution.
The company said it has a long track record of making businesses grow throughout North America, with expertise in the mining industry and t he Canadian market. The company said Dominion’s board has refused to let it perform due diligence, which might lead to an increased offer.
“We are disappointed that Dominion’s board has thus far prevented Washington from moving ahead with its proposal under which shareholders would receive a substantial premium and immediate liquidity, but we remain fully committed to completing this transaction,” said Lawrence Simkins, Washington Cos.’ president, in the statement.
The offer price comes at a decent premium to where Dominion has been trading given a sustained selloff in diamond stocks over concerns around Indian demonetization, said Edward Sterck with BMO Capital Markets in London. In addition, Dominion has faced its own challenges of late, including a fire at one of its mines last year and search for a new CEO, all of which should be resolved this year, he said.
“Based upon multiples, the offer price appears to underprice Dominion if we see the cycle improve; however, the company has recently struggled with market trust and thus the offer could be seen as attractive by some shareholders,” Sterck said in a note to clients.
Dominion also believes the offer undervalues the firm. It called the offer “unsolicited, conditional, and non- binding” and said Washington Cos. offered no unique plans for the business.
“The board confirmed that WashCorps does not have any experience in the highly specialized diamond mining industry and marketing industry,” Dominion said in an emailed statement Sunday, adding that the expression of interest failed to recognize the value of the company. It nevertheless told Washington Cos. that it was prepared to engage in further discussions, including a necessary standstill and allow it to perform due diligence.
“WashCorps continues to demand, as a condition to any discussions, a lengthy period of exclusivity, as well as the ability to veto the board’s choice of new CEO,” the company said. “In other words, WashCorps is seeking a self-interested ‘free option’ to learn of Dominion’s business and prospects, while paralyzing the company.”
In January, Dominion chief executive Brendan Bell said he planned to step down at the end of June.