GFI threatens legal action against Forsys

George Forrest International (GFI) is threatening legal action after Forsys Metals (FSY-T) said it was cancelling the deal that would have seen GFI acquire Forsys for $579 million.

Forsys says it was terminating the deal because GFI’s didn’t transfer the funds needed to complete it, and it is demanding that GFI pay it the $20 million reverse break fee.

Forsys had already given GFI extensions for making its payments back in March. The most recent deadline passed on Aug. 24.

But GFI spokesman Henry de Hareene told Reuters that because Forsys broke the deal, not GFI, it is not liable for the $20 million.

De Hareene went on to say that Forsys has breached the agreement and caused loss and damage to GFI.

Forsys spokesperson Bruce Hall says there was nothing in the agreement that stipulated that the break fee would not apply if Forsys broke the deal under the circumstances that GFI didn’t deliver the funds by the specified date.

After rallying to near the offer price of $7 per share, Forsys shares began to tumble on Aug. 14 signaling possible trouble for the deal. On Aug. 27 in Toronto the company’s shares closed at $4.50 – down 6% from the day previous on 820,000 shares traded.

But the reason for the market’s trepidation around the deal, and the reason for GFI missing its most recent deadline wasn’t a lack of funds, instead it was the unexpected intervention of the Canadian government.

The company announced earlier in the month that it had secured the financing necessary to close the deal. However, in an unprecedented move, Industry Canada halted the transaction just before it was set to be completed, and gave no reasons for its actions.

Industry Canada appeared to be following changes to the Investment Canada Act made in the spring with the aim of getting a clearer picture of just what entities were financing takeover of Canadian companies and assets.

GFI’s interest in Forsys has entirely to do with the company’s Valencia uranium deposit in Namibia.

The deposit sits on strike from Rio Tinto’s massive Rossing uranium mine – a project that the Iranian government holds a 15% stake in. There were rumours that the Iranians were supplying a part of GFI’s financing. GFI has not yet disclosed where its funds were coming from.

George Forrest – the head of GFI – has a long history with mining projects in the nearby Democratic Republic of the Congo and is also involved in the manufacturing of military equipment.