Labrador Income Fund adopts rights plan

After thwarting a takeover bid by London-based Rio Tinto (RTP-N), the Labrador Iron Ore Royalty Income Fund (LIF.UN-T) has adopted a rights plan to protect unit holders from creeping takeover bids.

“The securities laws in Canada allow a significant unit holder of the Labrador Income Fund to slowly consolidate control by purchasing units in the stock market or by private agreement transactions with institutional unit holders at a premium that may exceed the current trading price of our units by as much as 15%,” said Bruce Bone, the fund’s chairman, in a prepared statement. “The trustees of the fund believe that, if an investor wants to acquire control of the fund, they should pay an appropriate control premium, which should be shared with all of our unit holders.”

Under the proposed rights plan:

• 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 must remain open for at least 35 days; and
• a creeping bid through stock exchange purchases or private agreement transactions is not permitted.

Rio closed its hostile takeover bid for Labrador on April 21 after taking up 1.6 million units. With 4.3 million units bought on the open market, Rio now holds a 20.3% interest. 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 permitted under the rights plan.

Rio had offered $14.25 each for units 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.

Labrador says it is not aware of any more proposed takeover bids by Rio or another party.

As part of the plan, the fund will distribute one unit purchase right for every outstanding unit. No certificates will be issued for now and the rights will trade with the fund’s units.

In the event that the plan becomes invoked by a non-permitted bid for units, the rights would be activated to allow all unit holders to buy additional units at half their market price.

Labrador plans to submit the plan to its unit holders for their approval at the fund’s annual meeting in June.