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Two of Kirkland Lake Gold Ltd.'s biggest shareholders have weighed in on its controversial $4.9-billion bid for Detour Gold Ltd., with one wholeheartedly in favour of the transaction, and the other expressing reservations.

Eric Sprott, one of Kirkland’s top three shareholders, said he intends to vote for the all-stock acquisition.

Initially undecided, Mr. Sprott, who owns more than 13 million shares in Kirkland, said he came around after studying up on Detour and reflecting on Kirkland’s plans to boost performance at the struggling low-grade miner.

Kirkland says it can materially increase Detour’s production over the next few years, and slash its costs.

“I think it would be a pretty good cash-generating machine,” Mr. Sprott said of Detour.

Other top shareholders aren’t as enthused.

Joe Foster, portfolio manager with VanEck, wrote on the money manager’s website that while the big picture strategy behind the combination makes sense, he was “extremely disappointed" with the structure of the deal. The Toronto-based miner is offering 0.43 Kirkland shares for each Detour Gold share at a 24-per-cent premium, and no cash.

“Premium all-stock deals usually result in substantial declines in the acquirers’ share price," he said. "In addition, large quantities of the stock wind up in the hands of M&A arbitrageurs and can churn in the market for months, keeping further pressure on the stock.”

That exact pattern is playing out now for Kirkland. The company’s shares are down 15 per cent since the deal was announced on Nov. 25, with at least some of the pressure coming from arbitrage players, who bet the uncertainty over the deal will weigh on the share price. Such investors short-sell the stock of an acquirer -- sell borrowed shares and repay the lender with new shares they expect to get at the lower price -- and simultaneously buy and hold onto shares in the target.

After the deal was announced, many wondered why one of the world’s most profitable miners wanted to pay a 24-per-cent premium for a high-cost competitor. One analyst called it "a head-scratcher.” Kirkland shares quickly lost more than 17 per cent of their value.

But there is reason to believe that, in the case of Kirkland, the short selling has been particularly pronounced, with Mr. Sprott saying he has heard plenty of chatter from U.S.-based short-sellers “about what a lousy deal it is.”

VanEck’s Mr. Foster didn’t reveal whether he intends to vote for the deal, but he wrote that gold companies must find “more innovative ways of doing M&A deals that preserve and enhance value.”

The latest mergers and acquisitions in the gold industry got under way about 15 months ago, when Barrick Gold Corp. bought Randgold Resources Ltd. for US$6-billion. Unlike Kirkland’s quest for Detour, that acquisition was much more warmly received by shareholders. The facet of the deal that won the most plaudits was its no-premium structure.

Subsequent gold deals, such as Newmont Mining Corp.'s acquisition of Goldcorp Inc., and Kirkland’s bid for Detour, involve stock premiums, which is not as popular.

“It will be interesting to see if [Kirkland Lake shareholders] accept the recent loss of value in exchange for the promise of a stronger future, or whether they reject a deal structure that has destroyed value for other companies in the past,” Mr. Foster said.

VanEck is also a top-three Kirkland shareholder, with 14.5 million shares, according to Refinitiv.

Shareholders of Detour and Kirkland vote on the deal in January.

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