It was back in mid-February that Diatreme Resources (ASX:DRX) launched its takeover bid for silica sands rival Metallica Minerals (ASX:MLM). More than four months later, the whole thing seems to be making little progress.
According to the proposal, Metallica shareholders will receive 1.3319 fully paid ordinary shares in Diatreme for each Metallica share they own. The ratio at the time was based on Diatreme’s closing share price of $0.022 on 15 February, indicating a 22.08% premium over Metallica’s last closing price of $0.024 on the same day.
Though Metallica’s share price has since slid to $0.017, Diatreme has so far been unable to reach its compulsory acquisition threshold of 90% — even though the offer has been declared unconditional, with no competing bids. The company has managed to win over some Metallica shareholders, but still owns just 57.34%.
It’s perhaps a result of efforts by Metallica’s directors, all of whom hold shares in the company and have repeatedly said that other shareholders should reject Diatreme’s advances.
They argue that Diatreme remains a way off its 90% ownership threshold, and that any attempt to remove Metallica from the official list of the ASX would require a 75% shareholding.
Metallica has also noted attempts by Diatreme to install its own directors, who have not been identified and who would represent a majority on Metallica’s board. However, Diatreme has not put forward any protocols or similar arrangements to address any conflicts of interest while the takeover bid is active.
“On that basis, the board of MLM considers it unlikely that it will agree to the appointment of DRX nominees on the board, at least while the bid remains open for acceptance,” Metallica says.
“Ultimately, DRX has the ability to requisition a general meeting and pass ordinary resolutions to change the composition of the MLM board, including by electing a majority of DRX nominees to the MLM board.”
Or perhaps Diatreme’s inability to make meaningful advances has been hindered by a small group of Metallica shareholder activists, who have been campaigning to either secure a better deal, or prevent the transaction entirely.
Known as the Metallica Minerals’ Small Shareholder Action Group (SSAG), the shareholders first emerged in May with a 5.22% stake. That ownership has since grown to a blocking stake of 11.35% in early June, and now stands at 13.25%.
“At this stage the consensus from shareholders contacting us is that they feel they are being bullied into accepting the undervalued offer, both from the announcement but also by telemarketers,” a spokesperson for the group said in an email to Mining.com.au.
For its part, Diatreme has sought to illustrate the implications should Metallica shareholders not accept the offer, arguing that the decrease in available Metallica shares could make it difficult to sell — and even more so if Metallica is de-listed.
“We are pleased that we have a majority interest in Metallica, and that the offer is now free from all defeating conditions,” Diatreme CEO Neil McIntyre said earlier this week.
“Diatreme believes the offer is in the best interests of all Metallica shareholders. We strongly encourage all remaining shareholders to accept our attractive offer before it closes.”
The offer was originally expected to close on 27 May, but has been extended to 25 June.
Diatreme says a combination with Metallica presents a “compelling opportunity” to unlock value for both sets of shareholders, providing “the most timely, least dilutive, and efficient means of developing the pipeline of assets of the combined group.”
“The combined group would have a globally significant resource base and multi-strategic asset pipeline, thereby providing integration, scalability and development optionality, whilst increasing targeted mine life and potentially reducing development risk,” Diatreme said in February.
“It is expected to better position the combined group to accelerate first production, and bring forward the local and regional benefits of employment, commercial opportunities and royalties, and accordingly increasing shareholder value.”
Write to Oliver Gray at Mining.com.au
Images: Diatreme Resources
