In a battle likened to David defeating Goliath, two provincial regulators have confirmed a junior mining exploration company in British Columbia can proceed with a $6 million private placement offering, despite a hostile takeover bid by a bigger American silver mining company.
The news comes after a two-day joint hearing last week before the British Columbia Securities Commission and the Ontario Securities Commission, pitting B.C.’s Dolly Varden Silver Corporation against Hecla Mining Company, of Idaho.
According to an Ontario Securities Commission ruling, the volleys started on June 27, when Hecla announced its goal to buy all outstanding shares of Dolly Varden not already belonging to Hecla. On July 5, Dolly Varden countered by announcing it would go after private placement financing of up to $6 million.
On July 8, Hecla filed an application with the British Columbia Securities Commission to stop the private placement, while on July 11, Dolly Varden filed with the Ontario Securities Commission, alleging problems with the insider offer.
Last week, the commissions came back with favourable results for Dolly Varden.
“It’s a great result, obviously, for our client,” says Fred Pletcher, partner with Borden Ladner Gervais LLP and chair of the firm’s national mining group, who acted for Dolly Varden.
“There’s been a lot of commentary in the financial and legal press about whether hostile takeover, whether private placements, are the new poisoned pill as a preferred defensive strategy in response to hostile takeover bids in Canada, and a lot of people were looking at this decision as an important precedent on that point.”
Pletcher says it is “particularly an important case because in May of 2016, the takeover bid rules in Canada were significantly changed and this Dolly Varden decision is the first case to address an alleged defensive tactic since the new rules came into effect.”
The new rules in question fall under National Instrument 62-104, Take-Over Bids and Issuer Bids. Pletcher says “while some may view this as suggesting that private placements can be used as a poison pill as a tactical response to hostile takeover bids, I’d say it doesn’t really go that far, and the ruling isn’t carte blanche for targets to adopt private placements in response to bids.”
“There were a number of factual circumstances in this case which were fairly unique that suggested that Dolly Varden’s private placement wasn’t an abusive defensive tactic, and those facts may not be present in other circumstances,” says Pletcher.
Those who are interested in hostile takeovers — and defending from them — can learn from the background of the case.
“The first application was an application by Hecla Mining Company, which had launched an unsolicited takeover bid for Dolly Varden Silver Company to cease trade a private placement that Dolly Varden was proposing to enter into, and the Securities Commissions ruled against the application that Hecla had made so Dolly Varden is free to conduct its private placement,” says Pletcher.
The second application was one that Dolly Varden made to the Ontario Securities Commission that the Hecla takeover bid be required to include a formal valuation. This was under the insider bid requirements of Multilateral Instrument 61-101 — Protection of Minority Security Holders in Special Transactions.
“Hecla owns over 10 per cent of Dolly Varden and securities policies in Ontario and Quebec require a greater than 10 per cent shareholder to prepare a formal valuation, that’s prepared by an independent valuator and overseen by a special committee, not of the bidder but of the target, to address concerns that shareholders may have that they aren’t on a level playing field with the insider when it comes to information about the company,” says Pletcher.
“Hecla’s takeover bid had not included that formal valuation, and they said they were relaying on an exemption, but Dolly Varden didn’t think that was available so it made the application to the Ontario Securities Commission to have the valuation required for Hecla’s bid and Ontario has sided with Dolly Varden there, so the Hecla bid is effectively cease traded until they prepare and provide that valuation to Dolly Varden shareholders.”
Hecla was represented by Cassels Brock & Blackwell LLP. A firm spokesperson said they were not able to provide comment on the matter.