Passport Capital Responds To The Sale Of Transworld Garnet India Limited for Approximately US$19.5 Million By WGI Heavy Minerals
On June 17, 2008 hedge fund Passport Capital put out a press release that requested the board of WGI Heavy Minerals to delay their scheduled June 25, 2008 annual shareholders' meeting “as a result of WGI's failure to provide full details regarding the previously announced Transworld Garnet India (Pvt.) Limited (TGI) transaction.”
Passport alleges that not only did WGI Heavy Minerals fail to disclose the complete details of the agreement reached with V.V. Mineral, but that the company turned down a US$25 million for the TGI assets (US$5.5 million higher than the V.V. Mineral agreement) from a credible third party in the heavy minerals industry.
Passport also feels that WGI has intentionally delayed the filing of documents with regard to the agreement with V.V. Mineral in an attempt to lock in as many shareholder votes as possible before the annual shareholders' meeting. Passport also asks a number of questions of the board, beginning with whether the transaction is subject to V.V. Mineral obtaining financing and regulatory approval? Their next question asks if there will be any regulatory approvals be difficult to obtain in India, a country where WGI has already stated that government interests have tried to seize WGI's holdings in the past? Lastly, Passport asks whether WGI attained a fairness opinion with regards to the TGI transaction?
Passport’s intentions are best summed up in the line “As a higher-priced transaction would allow for more cash to be distributed to shareholders, Passport asks whether WGI entered into the best transaction possible or did it enter into a transaction with V.V. Mineral in a hasty attempt to placate shareholders in the circumstances of the current proxy contest?” Passport goes on to say that they are ‘value investors’ and are not attempting to arrest control of the board or the cash resources of WGI. The press release says “If Passport's director nominees are elected, Passport will have no greater ownership or financial interest in WGI than it has today and no greater ability to determine the outcome of future board elections. The only way that Passport can benefit from the election of its director nominees is by increasing WGI's share price, an improvement that will benefit all shareholders.”
Beach Minerals Company (BMC) - The Third Part Referred To By Passport Capital
On June 18, 2008 a company known as Beach Minerals Company (BMC) put out a press release stating that they had presented WGI Heavy Minerals with a “Cash Offer Option for USD 20 million” in December 2007. On April 22, 2008 BMC says that they sent an amended offer – “Cash offer for USD 25 Million USD to WGI Board and also assured a supply quantity of "60,000 M/T of Materials per annum for period of 3 years, which can be renewed further.” BMC asks of shareholders in WGI Heavy Minerals to investigable why the company’s board sold their Indian Subsidiary TGI at 19.5 Million USD, when BMC had already offered for 25 Million USD for the same?
BMC’s "Letter of Intent" and "Supply Agreement" referred to in the press release can be accessed at http://files.newswire.ca/730/LetterofIntent.pdf and http://files.newswire.ca/730/LetterofIntent2007.pdf
WGI Heavy Minerals Responds To Passports News Release
Finally, after the markets closed on June 18, 2008 WGI Heavy Minerals (WG: TSX) issues a press release responding to Passport Capital’s questions and allegations. The press release says that Passport Capital LLC “contains a series of false statements as part of its efforts to gain control of the WGI Board of Directors at the Company's June 25, 2008, Annual General Meeting.”
The board of WGI Heavy Minerals responds to Passport’s press release by saying that during the process of auctioning of its Transworld Garnet India (Pvt.) Limited assets, it did not “receive an offer superior to the V.V. Mineral transaction. No other offer or proposal was received that met the four criteria to maximize value for shareholders established by the current Board at the outset of the TGI sales process and previously disclosed by the Company.”
The criteria were:
“1. Maximum cash proceeds. This was achieved through approaches to all likely bidders in the global industry and a competitive bidding process which established the fair price for the asset.
2. A sales and distribution agreement that would provide a large and steady supply of high-quality heavy minerals for WGI's international distribution network. Only the V.V. Mineral offer provided for this.
3. That the transaction not be conditional on financing. As WGI has repeatedly stated, the V.V. Mineral offer has no such conditions; other bidders did.
4. A high likelihood that the sale could be completed within a reasonable time. V.V. Mineral provided assurances that it could complete the transaction; other bidders did not.”
Pertaining to the US$25 million offer mentioned by Passport Capital, the board of WGI said that the offer was a non binding porospa that was rejected because the “cash component was only US$10 million; the third party had no demonstrated any ability to deliver the volume quality and dependability required for the sales and distribution agreement, based on WGI's past experience with it; the third party had no financing in place; the third party could not provide assurances that it could complete its proposed transaction within a reasonable period.”
With respect to Passport’s allegations of WGI intentionally delaying the filing of public documents relating to the sale of Transworld Garnet India (Pvt.) Limited, the board of WGI replies by saying that it “issued a news release with all material facts promptly after signing of the purchase agreement.” They also mention that a material change report and copy of the purchase agreement were filed on SEDAR before Passport issued its news release and 3 days before the time allotted by securities regulations.
Laslty, the WGI press release reiterated that the company’s annual meeting remains scheduled for 10:a.m. Toronto time on June 25, 2008. However, the location has been changed to the University Ballroom East in the Park Hyatt Hotel, 4 Avenue Road, Toronto, Ontario.
So the dance begins. While both sides seem to have credible points, the third party to this dispute - Beach Minerals Company (BMC), i.e. the one that Passport alleges made a superior offer does say that its offer is a “Cash offer for USD 25 Million USD to WGI Board and also assured a supply quantity of "60,000 M/T of Materials per annum for period of 3 years, which can be renewed further.” I haven’t delved into the nitty gritty of the deal, so I can’t comment much further but on the surface the offer does look superior. However, WGI does make some valuable points about this offer being subject to financing and that the company could not provide assurances that it could complete its proposed transaction within a reasonable period. The key to identifying if this were the right deal for WGI Heavy Minerals depends on whether or not WGI attained a fairness opinion on the deal.
If the board of WGI Heavy Minerals insists of having their annual meeting on June 25, 2008 – we might see some sort of resolution to this dispute depending on which way shareholders place their votes. In the meantime however, given that WGI has announced this US$0.80 special distribution to WGI shareholders, the share price has moved up greater than 50%, reversing its year long downtrend. Regardless of the outcome of this dispute, I like that Passport Capital is trying to unearth value for itself and in turn shareholders of WGI Heavy Minerals.
Read more at: Recommend this article... Related items
Last update : 19-06-2008 05:00
|
(0 vote)