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Turquoise Hill Resources Ltd. TRQ-T is postponing its shareholder vote on Rio Tinto PLC’s proposed takeover of the Canadian copper company yet again, as Quebec’s securities regulator considers whether a side deal negotiated with dissident shareholders is legal, injecting even more uncertainty into the market.

London-based Rio last week said it had reached an agreement with Pentwater Capital Management LP and SailingStone Capital Partners LLC, under which they would be paid out 80 per cent of the takeover amount being offered to all Turquoise Hill shareholders and, after a ruling from an arbitrator, the remaining 20 per cent, plus interest, and potentially much more. The arrangement could see the two U.S. investors walk away with tens of millions in extra profits.

In exchange, the two investment firms, which had both been vociferously opposed to the $4.2-billion acquisition of Turquoise Hill by Rio, agreed to sit out the coming shareholder vote, making it highly likely the deal will succeed.

Rio already owns 51 per cent of Turquoise Hill and has control over several board seats. The giant Anglo-Australian miner is offering to buy the 49 per cent it doesn’t already own.

But soon after the backdoor deal with the two firms was announced, The Globe and Mail reported that Caravel Capital Investments Inc., a Bahamas-based hedge fund, filed complaints with the Autorité des marchés financier (AMF), the Quebec regulator, and the Ontario Securities Commission around the fairness of the deal for minority shareholders.

Then, Ed Waitzer, former chair of the Ontario Securities Commission, and a Turquoise Hill shareholder, told The Globe the deal with the dissidents was likely illegal. The principle of all shareholders being treated equally is enshrined in Canadian securities laws, he said, and the tenet has been legally tested on several occasions.

Montreal-based Turquoise Hill said late Sunday the AMF was now scrutinizing the deal. Mr. Waitzer said last week the regulator could prevent the deal from closing as structured, which would mean Rio might have to go back to the drawing board with the dissidents.

Shares in Turquoise Hill closed at $41.64 on the Toronto Stock Exchange on Monday, 3.2 per cent below the Rio takeover offer, signalling that investors are unsure whether the deal will succeed.

Mr. Waitzer and Caravel aren’t the only stakeholders who believe the side deal with the dissidents was problematic.

A special committee of Turquoise Hill’s board asked Rio just over a week ago if it would be willing to offer the same deal as the dissidents are getting to all of the minority shareholders, but Rio quashed that idea. The special committee was created after Rio made its initial takeover offer in March to try to ensure any takeover terms are fair to all minority shareholders.

Turquoise Hill shareholders are scheduled to meet on Nov. 15 to vote on the takeover. The bar for success is approval by at least 50 per cent of votes cast by minority shareholders. Before the backdoor deal was negotiated, SailingStone and Pentwater had been poised to vote down the takeover, as they both considered the amount being offered to minority shareholders as not nearly enough.

According to Caravel’s most recent public disclosure, it owned 275,000 shares in Turquoise Hill in September. The Globe on Monday asked if the investment firm had a continuing position.

Glen Gibbons, a founding partner with Caravel, wrote in an e-mail that the hedge fund still owned an unspecified number of shares in Turquoise Hill.

Follow Niall McGee on Twitter: @niallcmcgeeOpens in a new window

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