Summit-Paladin takeover battle escalates 7-March-07 by Andrew Hobbs
The ghosts of takeovers past have returned to haunt Subiaco-based Paladin Resources Ltd's takeover bid for Perth-based Summit Resources Ltd, with Paladin today asserting the bid was not motivated by a current legal dispute between the two companies.
Paladin acquired Resolute Mining Ltd subsidiary Valhalla Uranium Ltd late last year for around $174 million. Among the assets it acquired in the deal was Valhalla subsidiary Mt Isa Uranium Ltd, which held a stake in the Isa Uranium Joint Venture Agreement, along with a Summit subsidiary.
The JV, which mines the Valhalla/Skal deposit in Mt Isa, is now held 50-50 by Paladin and Summit
Summit launched legal action in September last year against Resolute and Valhalla, claiming the companies had breached the joint venture agreement through disclosure of information relating to the joint ventue in Valhalla's initial public offer prospectus. Summit alleged that the companies had done this to facilitate the Valhalla takeover.
Summit had earlier claimed that an existing condition of the JV gave one partner the option to fully acquire the project should the other pull out.
In a further development, Resolute and Mt Isa Uranium (now a Paladin subsidiary) have counterclaimed against Summit, alleging the company was the first to breach the JV through unauthorised disclosure of confidential information.
Paladin has been indemnified by Resolute for any losses it may incur as a result of the legal action, capped at between $50 million and $70 million.
In a letter to its shareholders today, Summit asserted that winning the case against Valhalla and Resolute would give the company the option to acquire 100 per cent of the joint venture, which would in turn cause Paladin to lose its stake.
"In the opinion of your directors... one of Paladin's key objectives in making its hostile offer is to do whatever it can ... to mitigate the risk of losing the litigation," the company said.
However, Paladin managing director John Borshoff rejected the claims in his own letter to shareholders today.
"The litigation has not been a factor in our decision to bid for Summit. Our objective is to acquire Summit so as to bring the appropriate management and market expertise to the development of the Mt Isa uranium assets, in which we already have a substantial interest," he said.
Only if Paladin acquired 100 per cent of Summit would the company force a withdrawal from the legal action, he said.
"We always viewed this litigation as an attempt by Summit to extract some leverage from the original Valhalla bid. It now seems to have morphed into a central plant of the defence to our bid."
Meanwhile, Summit retracted two of its reasons for rejecting the takeover bid in its announcement.
The company had claimed shareholders who had bought in to the company in the last 12 months would not be entitled to capital gains tax rollover relief even if Paladin were to acquire 80 per cent or more of the summit shares.
Today Summit backtracked from that position.
"It is correct that shareholders who bought their shares in the last 12 months would be able to access CGT rollover relief if they accept the offer and if Paladin acquires 80 per cent or more of the shares in Summit," the statement said.
"However, your directors remain firmly of the view that: Paladin will not acquire 80 per cent of the shares in Summit, [and] on this basis, accepting shareholders will NOT be eligible for rollover relief, and may be left with significant CGT liabilities.
"Shareholders who have held their Summit shares for less than 12 months and who dispose of those shares either by accepting Paladin's offer or by selling on market will NOT be eligible for any CGT discount that applies in respect of shares held for at least 12 months - those shareholders might therefore be taxed on any net capital gain at their top marginal rate of tax." [emphasis as in quotation]
The company also retracted from its claim that persons living overseas would not be offered Paladin shares under the offer, as legal advice from Paladin's lawyers, Freehills, indicated only shareholders whose overseas address appeared on Summit's shareholder register would have their Paladin shares issued to a nominee for sale.
Paladin is offering one share for every 2.04 fully paid ordinary Summit share, implying a price per share of $5.12, based on recent trading levels. This values Summit at about $1.01 billion.
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