Dominion Diamond to Explore Sale as Shareholders Revolt

Updated on
  • Canadian diamond miner working with Rothschild on options
  • K2-led shareholder group asks for meeting with board

Dominion Diamond Said to Explore Sale

Dominion Diamond Corp. has hired financial advisers to explore a sale as the Canadian miner comes under pressure from shareholders about its falling share price, according to people familiar with the matter. The shares surged the most since 2009.

The diamond miner has hired Rothschild & Co. to advise on the sales process, said the people, who asked not to be identified because the matter is private. The deliberations aren’t final and may not lead to a deal, the people said.

Dominion Diamond has been targeted by a group of shareholders, led by Toronto-based hedge fund K2 & Associates Investment Management, which sent a letter to the board Monday criticizing the company’s management and business strategy. The group requested a meeting to discuss changes to the company’s operations, including a strategic review.

The shares climbed 22 percent to C$14.02 in Toronto at 10:53 a.m., giving it a market value of about C$1.2 billion ($860 million), after earlier surging as much as 24 percent. The company’s shares had fallen 45 percent this year before today.

The shareholder group, which collectively holds 5.4 percent of the company’s shares, said that the stock price has suffered “excessively and unnecessarily as a result of misguided policies and missed opportunities.”

Representatives Dominion Diamond didn’t immediately respond to a request for comment. A representative for Rothschild declined to comment.

Dominion Diamond said in a statement Tuesday that the company “looks forward to an open dialogue” with the shareholder group.

Corporate Hardships

Dominion Diamond’s shares have fallen as the company has faced several challenges, including its chief executive officer Robert Gannicott taking a medical leave of absence in November 2014. He returned to the company as chairman in July, ceding the CEO role to Brendan Bell.

The company has also grappled with a weak diamond market and volatile quarterly earnings, said Edward Sterck, an analyst with the Bank of Montreal, said in a note Tuesday.

Still, Dominion’s shares have performed better than its nearest peer, Petra Diamonds Ltd., and the company has a strong cash position, accounting for about 40 percent of its market value as of Monday, Sterck said. The company could act “to support the share price with a considered buy-back at or below current levels,” he said

“Ultimately, we continue to see Dominion as being a well-run company, but there may be an opportunity to be more proactive in supporting the share price,” Sterck said in the note. “It seems likely that the group behind this letter may seek to attract additional shareholders to their cause and perhaps to put an appointee of its own on Dominion’s board.”

— With assistance by Paris Wald

(Updates with share price and analyst comment starting in first paragraph.)
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