The Washington Cos. announced Sunday, March 19, that it had offered to buy Dominion Diamond Corp. (DDC) in a deal valued at $1.1 billion.
Washington said in a statement that it offered to pay $13.50 per Dominion share, a 36% premium over Dominion's closing price of $9.92 on Friday and a 54% premium over Dominion's close on Wednesday, when talks between the two companies ended.
Shares of Dominion Diamond rocketed 23% Monday morning to $12.24 per share.
The bidder is a group of privately held companies in the United States and Canada, collectively controlled by Montana billionaire Dennis Washington, engaging in businesses including mining, heavy equipment distribution and rail transportation.
In a blistering response Sunday, Dominion criticized Washington's offer as "opportunistic," "highly questionable," "mostly boilerplate" and "self-serving," as well as one undervaluing Dominion.
"Based on the presentation received from WashCorps, and by their own admission, the Board confirmed that WashCorps does not have experience in the highly specialized diamond mining and marketing industry," Dominion said. "WashCorps also advised that they did not have any unique plans for the business." Dominion also said that, contrary to Simkins' claims, Washington refused to accept "customary" conditions and also demanded the right to veto Dominion's board's choice of a new CEO.
Washington said it proposed the deal in a Feb. 21 letter to Dominion's board of directors, after which the two sides began talks. By last Wednesday, however, Washington said Dominion demanded onerous terms to begin due diligence, including a broad 12-month standstill and an exclusivity period.
Dominion predecessor Aber Diamond Corp. renamed itself Harry Winston Diamond Corp. in 2007 after buying the renowned jeweler for $157 million. Dominion took its current name in 2013, the same year it acquired its Ekati interest for $500 million and sold Harry Winston to Swatch Group Ltd. for $1 billion.
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In the Feb. 21 letter, Washington president Lawrence Simkins said his company is particularly interested in Dominion's Ekati Mine Jay pipe, which "is important to all of the stakeholders of the Company, including the local economy, and is an integral part of the value of the business."
"Despite reasonable accommodations, which included Washington agreeing to a partial standstill providing that it would not acquire shares, make an unsolicited offer or sponsor a proxy fight during the standstill period and offering generous carve-outs to its exclusivity request, Dominion still refused," Washington said.
As a mining company, Dominion should favor "a shareholder with a long-term view, patience and effectively permanent capital to invest in the business over multiple decades," Simkins said, adding that Washington would likely fund an acquisition with debt.
"These conditions would frustrate the Company's ability to establish its senior leadership, would prevent Dominion from pursuing other value-creating opportunities, beyond the Company's current business plan, and would leave WashCorps free to lower its preliminary, highly conditional expression of interest or take advantage of the Company's confidential information to further its own interests through a subsequent 'cashless takeover,'" Dominion said. "In other words, WashCorps is seeking a self-interested 'free option' to learn of Dominion's business and prospects, while paralyzing the Company."
An activist shareholder group led by Canadian hedge fund K2 & Associates Investment Management Inc. urged Dominion to explore a sale last year, with sources telling The Deal, a sister publication of TheStreet, that Rothschild & Co. was advising Dominion.
Washington is taking financial advice from BDT & Co. LLC on the proposal. Skadden, Arps, Slate, Meagher & Flom LLP and Blake, Cassels & Graydon LLP are advising Washington on U.S. and Canadian law, respectively.
TD Securities Inc. is providing financial advice to Dominion, while Stikeman Elliott LLP is its outside counsel. Kingsdale Shareholder Services Inc. is also advising Dominion.