The Dominion Diamond Corporation says a reported $1.1 billion takeover bid undervalues the company and is a "highly opportunistic" attempt from a U.S. conglomerate to see its confidential information.
The Toronto-based mining company released a statement to shareholders Monday after a weekend disclosure of a Feb. 21 purchase offer from The Washington Co., based in Montana.
Dominion Diamond says The Washington Co. wanted access to the mining company's due diligence without respecting customary rules preventing it from using that confidential information to acquire control of Dominion if the deal was not completed.
It also said The Washington Co. included conditions which would prevent Dominion from establishing a new CEO and stifle other opportunities to acquire new assets.
"Washington Co. Is seeking a self-interested 'free option' to learn of Dominion's business and prospects, while paralyzing the company," the statement read.
Stocks continue rise Monday
The Montana-based private company is offering $13.50 USD ($18.04 CAD) per share cash for Dominion Diamond.
That's 36 per cent above the price for Dominion Diamond shares on Friday and 53 per cent above their closing price on Thursday, when Dominion Diamond broke off talks with The Washington Co. and issued revised guidance for the current year.
The stock opened at $16.45 CAD ($12.44 USD) Monday up $3.21 from Friday's close.
Paul Zimnisky, an independent diamond analyst in New York, sees the offer and subsequent rise in Dominion stocks as validation of the true value of the mining company. But he doubts Dominion's board will come to terms with Washington Co.
"This may turn into a hostile deal, it's probably already there," Zimnisky said.
"It looks as if Washington Co. gave up trying to negotiate privately," he said. "They released their $13.50 USD cash bid in the hope that it would generate enough shareholder interest that they would vote the deal through."
Though Washington Co. has interests in copper mining in the United States, it is new to diamond mining. That complicated the negotiations and makes it unlikely it completes the purchase, Zimnisky said.
Instead, another established diamond mining company may step in with its own offer, or at the very least the offer will prompt analysts to keep "more eyes on the stock," he said.
Dominion Diamond recently announced plans to move its head office from Yellowknife to Calgary.
It operates the Ekati mine and owns a 40 per cent stake in the Diavik mine through a joint venture with Rio Tinto PLC. Both mines are located in the Northwest Territories.