Ivanhoe expected to drop ‘ poison pill’ deal

Board recommends scrapping shareholders’ rights plan, paving way for takeover by Rio Tinto

TORONTO — The board of Ivanhoe Mines Ltd. is recommending that the company’s shareholder rights plan be scrapped, paving the way for Rio Tinto Ltd. to take control of the Vancouverbased miner.

The decision to drop the plan comes after Rio Tinto advised Ivanhoe’s board in recent weeks that it intends to buy more Ivanhoe shares “regardless of the status of the shareholder rights plan.”

Rio Tinto owns 49 per cent of Ivanhoe, its joint- venture partner on the giant Oyu Tolgoi project in Mongolia. While Rio is keen to increase its stake over 50 per cent and get control of Ivanhoe, the shareholder rights plan ( or “poison pill”) makes it very difficult, even though a standstill agreement between the two companies expired Wednesday.

Ivanhoe set up a committee of independent directors to study the shareholder rights plan, and they recommended that it be dropped. As a result, Ivanhoe will recommend that shareholders vote against it at the annual meeting on May 11.

“The board of directors has decided that the interests of shareholders would be best served by the termination of the company’s shareholder rights plan,” Ivanhoe said.

Additionally, Ivanhoe said that it will take further steps to ensure that the plan is not “inadvertently triggered” before May 11. That could involve a special transaction with Rio Tinto that would be exempt from the rights plan, allowing Rio Tinto to buy more shares before May 11.

Ivanhoe also reported that the first phase of Oyu Tolgoi is now 70- percent complete, and the first production lines are expected to be completed in mid- July of this year. Discussions with China are ongoing to supply power to the project.

Ivanhoe is still trying to secure financing for the project. The board has approved a proposed $ 1.8- billion US bridge financing from a “major” international bank as chief executive Robert Friedland continues to try to put together a much larger $ 4- billion US project financing package. The loan documents are expected to be signed in the second quarter of 2012, according to Ivanhoe.

Tom Meyer, an analyst at Scotia Capital, wrote in a note that he believes Ivanhoe is setting aside the rights plan because of financing risk at Oyu Tolgoi and lack of another buyer.

“It is still our opinion that Rio Tinto has been and is now clearly in the driver’s seat as to setting value for Ivanhoe shares,” he wrote.