Shareholders of Royal Oak back revised takeover offer

Shareholders of Royal Oak Mines (TSE) voted 95.7% in favor of the company’s revised takeover offer for Lac Minerals (TSE) at a special meeting here.

Royal Oak is now offering, for each Lac share, the choice of $5 in cash and two of its shares or 2.87 Royal Oak shares. The offer expires Aug. 19, one week before the expiry date of a competing offer by American Barrick Resources (TSE).

“We believe our offer is far superior,” said Royal Oak President Peggy Witte, adding that Royal Oak’s offer is valued at about $16 per Lac share, compared with Barrick’s offer valued at $13.85. “The ball is now in the court of Lac shareholders.”

Witte showed no signs of fatigue from her recent flurry of cross-country trips to meet with Lac shareholders and explain the details of Royal Oak’s offer. She provided an animated overview of what the merged company would like look, assuming the takeover is successful, and she repeatedly tried to drive home the point that adding Lac’s assets to Barrick would do little to add to the multiples the market already applies to its production. “By adding Lac’s under-managed and under-performing assets to Royal Oak, we believe we can offer the upside for Newco (the merged company) to increase its multiples,” Witte said. “We see it as a one-plus-one-equals-three scenario.”

Witte acknowledged that Barrick shares have less downside risk, because the company is not so highly leveraged to the price of gold as Royal Oak. But she said Barrick would have about $1 billion in goodwill to write down should it increase its offer to match Royal Oak’s.

Witte also said it may be difficult for Barrick to sell off Lac’s Canadian assets on a piece-meal basis at high enough prices to justify an increased offer.

Details were also provided on the banking and financial agreements that underpin Royal Oak’s revised offer for Lac. “This deal is structured in such a way as to allow the $400 million in Lac’s treasury to be available for the development of new projects,” Witte said. “This is not a leveraged buyout, and we will not be using funds from Lac’s treasury to finance our takeover.”