Stornoway to Take Up Ashton, Contact Shares

Stornoway Diamond (SWY-T, SWYDF-O) has taken up the shares tendered under its bids for Ashton Mining of Canada (ACA-T, AMCFF-O) and Contact Diamond (CO-T, CONPF-O), but Ashton management still opposes Stornoway’s offer.

Stornoway announced that 68.2% of Ashton shares had been tendered to its bid of $1.25 or one Stornoway share plus 1 for each Ashton share. That included a 51.7% interest held by Rio Tinto (RTP-N, RIO-L) subsidiaries Ashton Canada Proprietary and QIT Fer et Titane. The Rio interest was subject to a lock-up agreement that Ashton had challenged at the British Columbia Securities Commission, which dismissed the application to cease-trade the Stornoway bid.

Ashton shareholders that opted for cash, including Rio Tinto, will be getting 0.52 of a Stornoway share and 60 cash for each Ashton share.

Stornoway also had 67.5% of the shares of Contact Diamond, to be taken up at a ratio of 0.36 of a Stornoway share for one Contact. Contact’s parent Agnico-Eagle Mines (AEM-T, AEM-N) also gets 17.6 million shares of Stornoway in exchange for $22.5 million in cash, which will go toward the cash portion of the Ashton bid.

Stornoway has extended both bids to Oct. 2, and said it plans to pursue a buy-up of the untendered shares of both Ashton and Contact.

Ashton’s board is holding to its view that the Stornoway offer low-balled Ashton’s value, but chairman John Cole, in a prepared statement, said management still “remain enthusiastic about the company’s prospects and moving forward with Ashton’s new majority shareholder.”

Ashton had sought a cease-trade order against Stornoway’s takeover bid, originally on the ground that Stornoway, having reached a lock-up agreement with Rio Tinto that included a $2-million break fee, had not offered identical consideration to all shareholders.

In advance of the Securities Commission hearing, Stornoway and Rio agreed that the break fee, originally payable to Rio only, would instead be distributed to all Ashton shareholders if Stornoway backed off its bid. That left Ashton’s application resting only on a broad principle that majority shareholders should not reach lock-up agreements with takeover bidders.

The Commission heard arguments from Ashton, then decided it did not need to hear arguments from the respondents to decide against the application. The Commission held that “identical consideration,” in the context of the Securities Act, was the price paid for tendering the shares, not a penalty provision to be used against the bidder if a bid was terminated. “The evidence is clear,” the decision said, “that the penalty was not an inducement to Rio Tinto to sell its shares to Stornoway.”