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Rockgate cancels Mega merger, stays mum on Denison

VANCOUVER – The planned merger between Rockgate Capital (TSX: RGT) and Mega Uranium (TSX: MGA) is off, thanks to a superior offer for Rockgate from Denison Mines (TSX: DML).


VANCOUVER – The planned merger between Rockgate Capital (TSX: RGT) and Mega Uranium (TSX: MGA) is off, thanks to a superior offer for Rockgate from Denison Mines (TSX: DML).

Rockgate and Mega signed a definitive merger deal in mid-August that was to have exchanged 2.2 Mega shares for each RGT share. At the time the deal valued Rockgate shares at 25¢ apiece. Rockgate shareholders were to have voted on the deal at a special meeting on Sept. 25.

Those plans hit a hurdle on Sept. 17, however, when Denison tabled its own offer for Rockgate. Denison offered 0.192 of its shares for each RGT share, a bid carrying an implied value of $26.7 million or 23¢ a share. Importantly, by the time of Denison’s bid Mega’s share price had fallen from 11¢ to 8.5¢, which mean the per-share value of its Rockgate offer had fallen from 25¢ to 19.5¢.

As such Denison’s offer was superior, something Rockgate confirmed in a Sept. 25 news release.

“The board of directors of Rockgate has determined that the unsolicited takeover bid from Denison Mines … constitutes a superior proposal,” Rockgate said. “Mega subsequently waived its right to match the Denison offer and, as provided in the arrangement agreement, a termination fee of $1 million has been paid by Rockgate to Mega.”

That million dollar payment likely softened the blow for Mega, which says it is now assessing several other opportunities. The company is also sticking with its plan to ask shareholders to approve a 10-to-1 share consolidation and a name change to Uranium Capital at an upcoming shareholders meeting.

“We are disappointed that the Rockgate transaction did not proceed,” said Richard Patricio, Mega’s executive VP, in a statement. “However, we are committed to making disciplined investment decisions and the changing fundamentals of the deal no longer represented a comfortable value proposition for Mega.”

Denison says it was prompted to make an offer for Rockgate after several of Rockgate’s largest shareholders contacted the miner, saying they were unhappy with the Mega deal. Quite a few of those discontented shareholders have now committed their shares in support of the Denison deal – Denison has entered into lock-up agreements with investors that collectively control 36.8 million or 31.5 of Rockgate’s outstanding share count.

That’s a lot, but a Rockgate-Denison merger is still not certain. In announcing the termination of the Mega deal Rockgate’s board avoided making a recommendation with regards to the Denison offer. The board offered several reasons for remaining neutral, starting with “concerns with the financial terms of the Denison offer.”

Specifically, Rockgate points out that the Denison deal is structured as a change-of-control transaction, which differs from the merger of equals it had planned with Mega. Denison’s offer is also highly conditional, including conditions that give Denison sole discretion over whether to proceed. Finally, Denison’s offer demands a minimum tender of 90%, which is very high.

Rockgate’s board says it needs more time to “adequately assess the adequacy of the Denison offer.” Denison’s offer is open for acceptance until Oct. 25 and Rockgate’s board says it will provide a recommendation by Oct. 18 at the latest.

Rockgate’s primary asset is the Falea project in Mali, which is home to 29.6 million measured and indicated tonnes grading 0.086% U and 15.7 million inferred tonnes averaging 0.05% U. The deposit also contains significant recoverable silver and copper. A prefeasibility study on Falea is due out in mid-February. Rockgate also has $23 million in the bank.

Rockgate’s share price remained unchanged at 20.5¢ on news of the cancelled Mega deal. Denison’s share price fell 7¢ in mid-September when it tabled its Rockgate offer and has remained near that $1.12 level since. Mega’s share price lost half a penny on news of the cancelled Rockgate deal to close at 8¢.

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