Dominion Diamond Meets to Mull Options After Takeover Bid

  • Toronto-based miner has yet to launch formal sale process
  • Company will reach out to shareholders to gauge interest

Dominion Diamond Corp.’s board met Monday to consider the company’s options after a $1.1 billion takeover proposal from billionaire Dennis Washington was made public and sent its share price soaring, according to people familiar with the matter.

No decision has been made on whether to launch an official sales process, and the company will be meeting with its shareholders over the next few days to get their feedback, said the people, who asked not be identified because the matter is private.

Closely-held Washington Cos. said late Sunday it had submitted a conditional proposal to acquire Dominion Diamond for $13.50 a share on Feb. 21. Talks between the two companies reached an impasse over terms of a standstill agreement that would have allowed Washington to perform due diligence, a condition of the bid.

The offer was a 36 percent premium over where the company’s shares closed Friday. The stock closed up 23 percent at $12.20 on Monday.

Washington has said that gaining access to the company’s books may have resulted in a higher bid. It’s now prepared to participate in a public auction for the company if that were to occur, according to one of the people. Part of Dominion Diamond’s appeal to Washington is its North American headquarters, where Washington’s other assets are based. 

"The bid appears opportunistic to us but it does illustrate the intrinsic value of the company," Tanya Jakusconek, Toronto-based analyst with the Bank of Nova Scotia, said in a note to clients.

Consolidation Catalyst

The offer could provide a catalyst for potential consolidation of the Canadian diamond industry, or other transactions, Jakusconek said. Rio Tinto would be a logical bidder for Dominion Diamond as well because of the synergies it would achieve, she said. Rio owns 60 percent of the Diavik Mine, the remainder is held by Dominion Diamond, and has expressed a desire to remain in the diamond industry even though it expects its current operations to close by the early 2020s. 

“We believe DeBeers and Alrosa could also be interested,” she said.

Prior to the Washington proposal, Dominion Diamond had been looking at alternative transactions, including potentially merging with Canada’s Stornoway Diamond Corp., according to people familiar with the matter.

It is unclear whether Dominion Diamond is still considering that transaction. Representatives for Stornoway, Washington and Dominion Diamond declined to comment.

Dominion Diamond said in a statement Sunday that Washington’s proposal undervalued the company. It said the extent of its offer was a three-page letter, and despite what it deemed to be a lack of credibility from its suitor, Dominion Diamond’s board invited Washington to present its plans in early March. 

Toronto-based Dominion Diamond said it was unable to come to terms on a standstill agreement with Washington after the latter demanded a lengthy exclusivity period, and an ability to veto the board’s choice of a new chief executive officer. Dominion Diamond CEO Brendan Bell is set to step down on June 30.

“In other words, WashCorp is seeking a self-interested ‘free option’ to learn of Dominion’s business and prospects, while paralyzing the company,” Dominion Diamond said.

    Before it's here, it's on the Bloomberg Terminal.