Barrick supports move Royal Oak asks OSC to block Lac poison

In a move that could limit the options open to Lac Minerals (TSE), Royal Oak Resources (TSE) has asked the Ontario Securities Commission (OSC) to prohibit Lac from adopting its shareholder rights protection plan.

The OSC scheduled a hearing Aug. 17 (after The Northern Miner went to press) to deal with the matter.

For its part, American Barrick Resources (TSE) has endorsed the Royal Oak move but requested the OSC to put off its decision for four business days. The delay would give the public time to digest the findings of the OSC as well as the complexities of the Barrick and Royal Oak offers, according to a Barrick statement.

Lac’s rights plan, commonly known as a “poison pill,” was approved in 1991 to fight any hostile takeover bids. Should anyone acquire more than 15% of Lac’s voting shares in a way that is not classified by the board of directors as a “permitted bid,” shareholders can exercise rights to buy Lac shares at half the market value. (A poison pill provision would not prevent a takeover but would act to make it a more expensive proposition for the bidder.) Lac’s position is that the plan, if executed, would allow the board of directors sufficient time to explore and develop alternatives for increasing shareholder value.

Royal Oak argues that since two bids for all of the outstanding shares have been offered, executing the plan would deprive Lac shareholders of the ability to respond to, or choose between, the competing bids. If the OSC rules in favor of Lac and allows the company to execute its plan, the ultimate decision on whether to adopt the poison pill or accept one of the two formal offers will be made by Lac shareholders.

The application to the OSC came shortly after the Lac board formally rejected Royal Oak’s bid. Lac cited several reasons for rejecting the offer, including questionable accounting practices, uncertain value of the offer related to the share portion of the offer, unfair tradeoffs, dilution, high leverage and high risk.

Nevertheless, Royal Oak is proceeding with its takeover bid. It has received a receipt for a short-form prospectus filed with the OSC and has filed a registration statement with the U.S. Securities and Exchange Commission concerning the $120-million equity portion of the offer.

At presstime, shares of Lac remained unchanged at $14 while those of Royal Oak had closed down 13 cents at $5.50.