Photographer: Ben Nelms/Bloomberg

Washington Cos. Raises Dominion Diamond Bid to $1.2 Billion

Updated on
  • Shareholders to receive $14.25 a share, topping earlier offer
  • Deal marks end of long saga to sell Canadian diamond miner

Billionaire Dennis Washington is extending his reach into Canadian diamonds by striking a friendly $1.2 billion deal to buy Dominion Diamond Corp.

Dennis Washington

Source: Washington Cos.

The 82-year-old self-made industrialist, whose North American empire stretches from railways to container ships, sweetened his offer for Dominion, agreeing to buy the owner of Canada’s oldest diamond mine for $14.25 a share.

If successful, the deal would mark the culmination of a long process by Dominion to sell itself in full or in part.

In March, the billionaire went public with a $1.1 billion, or $13.50 a share, unsolicited bid for Dominion. A week later, Dominion said it would start a process to find alternative buyers, the second time in two years it had put itself on the block. In 2015, Dominion had hired Rothschild & Co. to explore a sale amid a shareholder revolt.

Rival Bids?

In recent months, Canada’s Stornoway Diamond Corp. had been widely seen as a logical bidder because prior to the move by Washington Cos., it had discussions with Dominion about a potential merger, people familiar with the matter had said. Rio Tinto Group was seen as an even more obvious candidate, given that it operates and has controlling interest in the nearby Diavik diamond mine, in which Dominion holds a 40 percent stake.

While a competing bid from Rio can’t be ruled out, Rio’s management may not want to take on the acquisition so soon after a period of asset-shedding, BMO Capital Markets analyst Edward Sterck said in a research note.

Asked if Washington was concerned about a possible rival bid, Chief Executive Officer Larry Simkins said the company looks forward to partnering with Rio. “We fully expect to complete the acquisition of Dominion Diamond by the end of 2017,” he said.

A spokesman for Rio declined to comment.

Read more of the interview with Larry Simkins here.

Dominion rose 4.2 percent to $14.05 at 1:46 p.m. in New York.

Monday’s offer raises Washington’s original bid by 5.6 percent and is a 44 percent premium to Dominion’s closing U.S. share price on March 17, the last trading day before its first offer was made public.

Two Mines

In addition to the stake in Rio’s Diavik, the purchase gives Washington controlling interest in the Ekati diamond mine, located nearby in Canada’s Northwest Territories, home to some of the richest -- and most remote -- diamond deposits in the world. Ekati is roughly 130 miles (209 kilometers) south of the Arctic Circle.

“The transaction allows the operation to take the next steps in mine development and ensures mining and its associated benefits continue in the North for decades to come,” Dominion Diamond Chairman Jim Gowans said in a joint statement.

Last year, Dominion decided to move forward with the Jay Pipe expansion that’s projected to extend Ekati’s life by 10 years to 2033. As of January, the mine had produced almost 68 million carats of diamonds over almost two decades of operation.

“The near-term cash flows from the Misery main pipe are the main attraction,” BMO’s Sterck said Monday by phone from London, referring to one of six kimberlite pipes on which Ekati’s mine plan is based. “The market concern has been that all that cash flow is plowed back into development into the Jay pipe.”

As a private firm, Washington Cos. has a longer-term investment horizon than “your average equity investor,” Sterck said, meaning it’s better placed to manage the mine’s future development.

Discovered in the 1980s by famed prospectors Chuck Fipke and Stewart Blusson, the Ekati deposit sparked the original diamond rush that transformed the area.

— With assistance by Natalie Obiko Pearson

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