McEwen moves to scuttle Goldcorp-Glamis merger

Vancouver — Goldcorp (G-T, GG-N) founder and ex-chairman Robert McEwen has launched the opening salvo in a proxy fight opposing the company’s plan to merge with mid-tier producer Glamis Gold (GLG-T, GLG-N) without seeking shareholder approval. The proposed deal would see Goldcorp issue 1.69 shares for every Glamis share in a deal initially valued at about US$8.6 billion.

McEwen, also Goldcorp’s largest individual shareholder with a 1.5% stake in the company, has fired off a letter to the board of directors stating the board is violating the Ontario Business Corporations Act by failing to convene a shareholder’s meeting to vote on the proposed merger. He alleges that Goldcorp is attempting to circumvent shareholder protection mechanisms in place under corporate law.

“The fact is, Goldcorp is an Ontario corporation and it should not do indirectly, through a wholly owned special purpose vehicle, what it can’t do directly,” McEwen wrote.

Goldcorp management outright rejects McEwen’s assertions, citing the many similar deals that have been completed in Canada without a shareholder vote. Furthermore, Goldcorp President and CEO Ian Telfer says there has been no groundswell of support for a shareholder vote.

Some Goldcorp shareholders expressed opposition to the merger following its announcement in late August, believing the proposed deal to be excessively dilutive (issuing 67% more stock, about 282 million shares). Goldcorp shares dropped about 15% following the merger news, while shares of Glamis rallied about 18%.

Glamis shareholders will be entitled to vote on the merger with support of two-thirds required for it to pass. Boards of both companies have already approved the deal and they expect it to close in November, subject to some regulatory considerations.

Additionally, the merger agreement has Glamis agreeing to pay a US$215-million break fee to Goldcorp under certain circumstances, which also retains rights to match any competing offers. Upon completion of the combination, Goldcorp and Glamis shareholders will hold 60% and 40%, respectively, of the new Goldcorp with the companies holding board representation in the same ratio.

“Glamis has indicated that if the proposed transaction is unsuccessful due to Goldcorp’s shareholders voting it down, they would sue the company for a large sum of unspecified damages,” says McEwen in a press release posted on his website, which is attempting to elicit support from shareholders. “While that would be most regrettable, if this happens, Goldcorp and its shareholders may very well have their own remedies against the board and management of Goldcorp so that shareholders do not have to pay for their mistakes.”

McEwen contends the deal will destroy Goldcorp shareholder value and expose the company to an increasing amount of geopolitical and operational risk.

On the day of McEwen’s announcement, shares of Goldcorp climbed 89 to the $25.50-level in a 52-week range of $20.57-$45.99, while Glamis shares gained $1.25 to close at $42.44 in a 52-week range of $22.35-$53.05.