Lac management accepts Barrick offer

In a move that took many investors by surprise, American Barrick Resources (TSE) announced it had signed an agreement with takeover target Lac Minerals (TSE) to acquire all outstanding shares of the latter company.

Shortly before presstime, Lac’s board of directors said it will recommend that its shareholders accept this offer and co-operate with Barrick in implementing the transaction.

The agreement comes after Barrick increased its offer to either $5 in cash and 0.325 Barrick shares or 0.487 Barrick shares, from its original offer of $4 cash and 0.31 shares or 0.43 Barrick shares.

Based on the opening price of Barrick shares when trading resumed after the news had been released, the offer is worth about $14.80 per Lac share. The offer is set to expire Sept. 6.

According to Barrick Chairman Peter Monk, the sweetened offer was made “to satisfy the bulk of the institutional investors.” He added that “I, for one, believe, without a shadow of a doubt, this offer will be of material and tangible benefit to the shareholders of Lac and American Barrick.” Discussions between Lac and Barrick were initiated by Lac on the afternoon of Aug. 23. “It was a long and arduous process,” according to Monk. After working through the night, the deal was then completed around noon, Aug. 24. Barrick’s latest move in the game for control of Lac followed Royal Oak Mines’ (TSE) decision to extend the deadline of its offer until 9 p.m., Eastern Standard Time, on Tuesday, Sept. 6.

Royal Oak extended the deadline after its offer had expired. Although a Royal Oak spokesman said the offer had “very good support,” it is unknown how many shares were tendered to Royal Oak. It was the second time that Royal Oak extended its bid.

Barrick had been giving signals that something was in the works earlier when the company had sought and received approval by the Ontario Securities Commission (OSC) exempting the company from certain requirements necessary to amend its offer. This approval cleared the way for Barrick to take up and pay for deposited shares and to extend the duration of its offer. Some questions remain. How will Lac shareholders view this new offer? And how will Royal Oak respond?.

Despite Lac management’s support for the bid, the door has not been shut on any other potential bids. Lac Chairman James Pitblado explained that “although we are not seeking better offers, if one were to come along, we have a fiduciary responsibility to withdraw our support for Barrick’s bid.” Although some companies may be waiting in the wings, it is not known whether they would be willing to upstage Barrick. Toronto-based TVX Gold (TSE) had earlier scuttled the idea that it would involve itself. It had been holding discussions in conjunction with Kinross Gold (TSE) regarding a possible business combination of the three (TVX, Kinross and Lac) companies. Last week, however, TVX opted out of further discussions, citing the need to serve shareholders’ and the company’s best interests as reasons. This latest flurry of activity followed last week’s decision by the OSC to dissolve conditionally the shareholders’ rights protection plan, also known as the “poison pill.”

That decision takes away the threat of Lac’s management flooding the market with shares issued at a 50% discount from market value. The OSC ruled that, as long as all the conditions of either of the two bids are met, excluding the condition relating to the poison pill, it would issue a cease-trading order and prohibit Lac management from executing the plan. With Barrick’s new offer being a “permitted bid,” the poison pill has in fact been dissolved.