CANADIAN MINING PERSPECTIVES: VIEWPOINT – McEwen fights Goldcorp-Glamis merger

Picture for a moment the brave matador standing tall in the heat and dust of the bull ring. He faces down not one, ...
Picture for a moment the brave matador standing tall in the heat and dust of the bull ring. He faces down not one, but two raging beasts. Can he prevail? Can he bring the bulls to their knees?

Or more to the point, Can Rob McEwen derail the proposed merger of GOLDCORP and GLAMIS GOLD?

McEwen was the founder, builder and leader of Goldcorp until it acquired Wheaton River Minerals in April 2005. He stepped aside in favour of Wheaton executive Ian Telfer, who became Goldcorp's president and CEO. McEwen went on to take up the reins at US GOLD, but has remained the largest individual shareholder of Goldcorp.

At the root of the dispute is the proposed acquisition of Glamis Gold by Goldcorp. The deal, proposed in August 2006, would see Glamis shareholders receive 1.69 Goldcorp shares for each Glamis share. The proposal values each Glamis share at US$51.49, a 33% premium based on Aug. 30 closing prices for both companies. Business would continue under the Goldcorp name, and the new company would be held approximately 60% by its former Goldcorp shareholders and 40% by former Glamis shareholders.

The combined company would be worth US$21.3 billion and vault the Goldcorp name to the ranks of the world's premier gold producers. Gold production in 2007 would be in the neighbourhood of 2.9 million oz. The new Goldcorp would find itself with 41.1 million oz of gold in reserves, 14.0 million oz in measured and indicated resources, plus another 30.9 million oz in the inferred category.

Glamis shareholders overwhelmingly (98.6%) approved the deal in a vote on Oct. 26.

Goldcorp has not offered its shareholders the opportunity to vote on the deal, and that fact has raised the ire of the company's former chief. McEwen has twice gone to court to force Goldcorp to place the matter before its shareholders for a vote. The Ontario Superior Court of Justice dismissed his first application on Oct. 25, saying there is no legal requirement for Goldcorp to do so. He filed for a judicial review of the decision on Nov. 1.

Meanwhile, McEwen has issued numerous press releases to get his point across. He believes that the deal is too expensive and will dilute Goldcorp investors' share in the combined company. Moreover, he is insistent that the matter be put to a vote by Goldcorp shareholders. That is the argument he is using before the courts.

In his "Open letter to all shareholders of all Canadian public companies" on Oct. 31, McEwen wrote that if the court denies a vote, it will set a dangerous precedent. "It will encourage legal advisors to recommend transaction structures that only require the acquired company's shares, the ones being paid a premium, to have a vote. Shareholders of the acquiring company will have no information, no right to vote, no right to dissent, no way to protect their investment. It will allow management teams and boards to ignore the wishes of the shareholders. A decision to deny a vote will strip investors in Canadian public companies of their fundamental rights associated with ownership," he said.

If the court sides with McEwen a vote will be required, and that is all good for Goldcorp shareholders. However, there is no legal requirement that the acquiring company put a proposed merger to a vote of its shareholders. A new law must be written. That would take time and potentially derail or at least delay the Goldcorp-Glamis deal.

McEwen is known to hold about 1.5% of Goldcorp's shares. He also claims that shareholders representing 28 million shares have pledged their support to his demand for a vote. With well over 400 million Goldcorp shares outstanding, McEwen and his supporters cannot win a vote by themselves, but he probably has the influence to bring others into his camp.

McEwen has a gift for keeping an issue front-and-centre in the minds of mining news writers. His protracted fight may eventually see the laws changed to require a vote of the acquiring company's investors when mergers are in the works. That would be a sea change in Ontario stock regulations.

Is McEwen truly motivated by what is best for all Goldcorp shareholders? Or is he grinding his own axe? Perhaps a little of both. But his rhetoric is beginning to sound more desperate. In his "Open letter" he wrote: "Take a wild guess at the number of advisors, legal and financial, that Goldcorp and Glamis felt were needed to complete this transaction without a Goldcorp shareholder vote. Does hiring eight investment dealers and engaging thirteen law firms sound excessive?" I'm willing to bet that McEwen has a few advisors of his own.

Do McEwen's arguments sound excessive? We'll let our readers be the judge of that.


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