Steen takes charge at Lac — Royal Oak sweetens Lac offer

The latest round of what has been referred to as an “auction” of Lac Minerals (TSE) saw initial bidder Royal Oak Mines (TSE) increase its offer to $2.4 billion.

And million-ounce gold producer Lac took some defensive action of its own by hiring Peter Steen as president and chief executive officer. The revised Royal Oak bid represents a total value of more than $16 per share (see accompanying story). The initial offer, made just over a month ago, was worth $13.59 a share and was valued at about $2 billion.

Margaret (Peggy) Witte, president of Royal Oak, announced the increased offer was the result of discussions she held with some of the Lac shareholders. She said that “based on what we heard, we believe that our increased offer will give us the support we need to complete the acquisition.”

However, many observers remain skeptical of the new offer. During a conference call after the deal was announced, many questions were asked about what Royal Oak’s debt level would be if the offer was accepted and about methods used by Royal Oak to account for the transaction.

The additional financing to fund the new offer will be raised through an increase in the exchange offer credit facility and by a public underwriting of Royal Oak shares.

Royal Oak’s banking group has extended an additional US$50 million to Royal Oak, while its financial advisers have signed an agreement for the underwriting of $120 million worth of Royal Oak shares.

With regard to the accounting practices, Lac has claimed that according to the Canadian Institute of Chartered Accountants, Royal Oak’s method of accounting for the good will does not conform to Canada’s generally accepted accounting principles.

Royal Oak maintains that its auditors, Arthur Anderson & Co., have used acceptable accounting policies.

At presstime, Lac was currently considering Royal Oak’s second offer before making a recommendation to its shareholders.

Royal Oak’s latest offer came days after Lac began to muster a defence. After formally urging shareholders to reject Royal Oak’s first bid, Lac’s management urged rejection of the bid from American Barrick Resources (TSE). Barrick’s offer should be rejected, according to a Lac statement, because “Lac shareholders would be trading shares with significant upward potential for American Barrick shares which trade at high multiples and have significant downside risk.”

Barrick’s Vince Borg, vice-president of public affairs, said his company sees no reason to change its offer.

To many observers, the arrival of Steen seems ironic. Steen is the former president of International Corona, a company that waged a bitter and lengthy court battle with Lac and won control of the key ground position that now hosts the Williams gold mine in the Hemlo camp of northern Ontario. Following a takeover of Corona by Homestake Mining (NYSE) — another company rumored to be interested in Lac — Steen, in 1992, became president of Homestake.

Steen has been given a contract to head Lac until December, 1995. It remains to be seen what investors think of Lac’s latest move, criticizing Royal Oak’s accounting practices.

Two other companies, TVX Gold (TSE) and Kinross Gold (TSE), have made a joint proposal for a merger with Lac which, according to a TVX spokesman, remains on the table.

Shares of the companies involved were relatively stable. At the Aug. 9 market close, shares of Lac stood at $14.25, Royal Oak was at $5.63, Barrick was at $30.63, TVX was at $7.87 and Kinross was at $5.38.