Labrador appeals rights plan decision

The Labrador Iron Ore Royalty Income Fund (LIF.UN-T) has announced that it will appeal Ontario Superior Court Justice Farley’s decision that the company’s unit holder rights plan is null and void.

Labrador is applying for a stay of the order, pending its appeal.

London-based Rio Tinto (RTP-N) had applied to the court to have the plan set aside. Rio questioned if the trustees had the power to amend the declaration of trust and implement the rights plan on May 7, subject to unit holder approval at a vote on June 27.

The trustees adopted the rights plan to prevent creeping takeover bids.

The plan includes the following conditions:

• a unit holder would not be able to acquire more than 20% of the fund’s outstanding units without making a takeover bid;
• any declared takeover bid would remain open for at least 35 days; and
• a creeping bid, through stock exchange purchases or private agreement transactions, would not be permitted.

Under the plan, Labrador would distribute one unit purchase right for every outstanding unit. No certificates would be currently issued and the rights would trade with the fund’s units. If the plan was invoked by a non-permitted bid for units, the rights would be activated, allowing all unit holders to buy additional units at half their market price.

Rio closed its hostile takeover bid on April 21 after taking up 1.6 million units that were tendered under the offer. Rio also bought 4.3 million units on the open market and the company now holds a 20.3% interest in the fund.

Rio’s units will be grandfathered under the rights plan, but the company will not be entitled to purchase any more units, except through a takeover bid made under the rights plan.

Rio had offered $14.25 for each unit of the fund, which owns an 18.9% interest in Rio’s 56%-owned subsidiary, Iron Ore Co. of Canada, operator of the large iron mines at Labrador City.