Dominion Diamond Corp., the world’s third-largest producer of rough diamonds by value, announced Monday that it would be acquired by The Washington Cos. for $1.2-billion (U.S.), four months after a previous unsolicited $1.1-billion offer from the privately held American company prompted Dominion to put itself up for sale.
If given shareholder and regulatory approvals, the deal would see Washington buy up Dominion’s shares for $14.25 a piece – a 44-per-cent premium to the $9.92 share price on March 17 of this year, versus its original $13.50-per-share offer.
In early-afternoon trading, Dominion’s New York-listed shares were up 4.4 per cent, at $14.07. Toronto-listed shares were up 5.4 per cent.
Montana-based Washington, founded by billionaire industrialist Dennis Washington, owns a network of companies in machinery, rail, mining, and other industries. The Dominion acquisition deepens Washington’s exposure to Canada – its portfolio includes shipping endeavours through Seaspan Corp. and Seaspan ULC that have significant operations in British Columbia – and will serve as a strategic long-term investment for the consortium.
“We’ve built our companies with the foundation of looking to invest over three generations,” said Larry Simkins, Washington’s president and chief executive, in a phone interview.
Dominion has a controlling interest in the Ekati Diamond Mine a 40-per-cent stake in the Diavik Diamond Mine, both northeast of Yellowknife – the city where the company was long based, though it is transitioning its headquarters to Calgary this year. While the acquisition marks Washington’s entry into the diamond business, it has operated a copper mine in Montana for three decades.
“The reason that this makes sense for the Washington Companies is, No. 1, it's mining,” Mr. Simkins said. “We understand mining, we understand mining cycles, we understand how to manage mines.”
Washington expects to continue Ekati’s current development plan, which would see the mine’s life be extended for decades, including by investing in its Jay and Fox Deep expansion projects. The company also wants to increase funding to Dominion’s Canadian greenfield exploration program.
As a private group of businesses, Washington plays the long game with its holdings, and Mr. Simkins said a diamond mine fits that strategy well. The company hires management with this in mind. Dominion has been hunting for a new CEO since Brendan Bell announced in January that he would resign because of the company’s move from Yellowknife; Washington will now play an active role in finding a replacement.
“it's a very attractive environment for somebody who wants to run a company, and wants to be a part of the success of a company,” Mr. Simkims said. “Broadly, that's what we do – we spend a lot of time on succession planning.”
The company said Monday that Dominion’s management and the new CEO will continue to be based in Canada.
A publicist for Dominion said company executives were not available for an interview, but in a press release, chair Jim Gowan said the acquisition was “excellent” for shareholders, employees and community members in the Northwest Territories. “The Washington offer delivers compelling and immediate value to Dominion shareholders at an attractive premium that recognizes the intrinsic value of Dominion and provides shareholders certainty through an all-cash offer,” he said.
Analyst Richard Hatch of RBC Capital Markets said the sweetened offer was little surprise, and that the $14.25-per-share price fell within the range he expected. “We see [Washington] as the logical bidder for DDC and expect the deal to go through,” he said in a research note
Since the U.S.-Canada exchange rate has shifted closer to parity since the original offer, BMO Capital Markets analyst Edward Sterck pointed out in a note that Washington’s new bid “is broadly unchanged from a Canadian dollar perspective.”
Reuters reported earlier this year that the Canada Pension Plan Investment Board had been considering a bid for Dominion, and that the company had also held merger talks with small producer Stornoway Diamond Corp.
Dominion has the right to consider other proposals; if a superior one emerges, Washington will have five business days to match it. If Dominion accepts another proposal, it will owe Washington a termination fee of $44-millon (U.S.). If Washington is unable to make the commitment in case of a funding failure, it would face a reverse termination fee of $70-million.Report Typo/Error