Are private placements the new poison pills? – by Drew Hasselback (Financial Post – July 20, 2016)

The dollar values may be low, but the stakes are huge. Idaho-based Hecla Mining Co. has launched an unsolicited bid to take control of Vancouver-based junior miner Dolly Varden Silver Corp. According to Bloomberg, the bid has a cash value of only $10 million. But Canadian M&A lawyers are following the deal because it’s sparked a legal battle over the country’s hostile takeover rules.

The B.C. and Ontario Securities commissions are holding simultaneous hearings on Wednesday to decide whether companies can thwart unwanted takeover bids by selling a big chunk of their shares in a private placement.

Hecla, a silver producer, already owns just under 20 per cent of Dolly Varden. Hecla announced on June 27 that it would seek 50 per cent of the Dolly Varden shares it doesn’t already own. A formal offer was filed July 8.

On July 11, Dolly Varden told its shareholders to take no action while it considered the Hecla offer. Meanwhile, Dolly Varden announced plans to issue a $6 million non-brokered private placement to pay off a loan and fund exploration of its silver project.

Hecla has complained to both the B.C. and the Ontario securities commissions that the real purpose of Dolly Varden’s private placement is to thwart its unsolicited bid. Hecla has also asked that if regulators let the private placement proceed, it wants regulatory permission to buy into the private placement so it can preserve its 19.8 per cent equity stake in Dolly Varden.

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