Old-style Shoot-out Looms In Hostile Hecla Mining Co Bid For US Silver

on Aug 1, 2012

A hostile takeover battle of classic dimensions has developed in connection with listed precious metals miner US Silver Corporation (USSIF), with white knight bidder RX Gold & Silver Inc (RXE) in danger of being elbowed aside by unwelcome – at least by US Silver’s board – interloper Hecla Mining Co (HL).

Matters had been proceeding swimmingly for US Silver and RX Gold & Silver when on 7 June the two Canadian (Toronto-based) prospectors were, according to a mutual press release, ‘pleased to announce’ a ‘business combination’ – a.k.a. a merger – whose combined resources would better exploit the two prospectors’ US holdings in Idaho and Montana. For the respective boards it would be business as usual, with all directors of both companies migrating to the board of the newly-formed US Gold & Silver Inc. Management of the new entity would be ‘comprised of the combined best talent from U.S. Silver and RX Gold’ – meaning some incumbent managers faced the chop.

Although structured as a merger, the deal would give US Silver the lion’s share – some 70 percent – of the equity in the newco. The other side of the coin would be that US Silver’s shareholders would hand over a 30 percent stake in their company, and 50 percent of its direction, to their peers in the much smaller RX Gold & Silver. But supposedly an excellent trade, with the press release asserting that the deal would give US Silver shareholders ‘an implied premium of approximately 45% based on the closing price of C$1.46 on June 6, 2012’. By ‘implied premium’, read ‘no cash on offer’. Nevertheless, both boards were unanimous in recommending acceptance of the merger.

!m[](/uploads/story/217/thumbs/pic1_inline.png)A leisurely pace was set for completing the deal – regulatory filings and shareholder mailings of the former merger proposal by ‘early July’ and shareholder meetings to consummate the merger by ‘early August’.
Then, from south of the border, all the way from Coeur d’Alene in Idaho, thundered in the Hecla Mining Company, saddle-bags stashed with cash. On 25 July it announced its intention to bid for 100 percent of US Silver at C$1.80 per share (ditto in USD) – no strings attached. Announced Hecla president and CEO, Phillips S. Baker, Junior, “Once launched and successful, the all-cash Hecla Offer will provide certainty of value and immediate liquidity at an attractive valuation for U.S. Silver shareholders.” As for the US Silver tie-up with RX Gold & Silver, Baker claimed that it “fails to maximize value for U.S. Silver shareholders and is, by any measure, inferior to the Hecla Offer.”

Predictably, US Silver’s board were dismissive to a man of the $110 million Hecla bid. After taking just a few days to conduct an obligatory assessment, the board on 30 July issued a statement rejecting it outright, with Gordon Pridham, chairman and interim CEO, saying that “the Board continues to believe that the proposed strategic combination transaction with RX Gold is in the best interest of shareholders.”

The US Silver board recommended that shareholders “vote in favour of the combination transaction at the August 7th shareholders’ meeting.” Backing up this advice, the board asserted: “Valuation multiples in the precious metals sector are at or near all-time lows – the Hecla Offer is simply not compelling enough for us to abandon our strategic plan going forward.”
One day later, on 31 July, Hecla uploaded to its corporate website an ‘investor presentation’ pitched at US Silver shareholders. Included are instructions on issuing proxies in Hecla’s favour for voting at the RX Gold & Silver merger shareholder meeting on 7 August. So it’s no-holds-barred stuff now.
Meantime, an excited market quickly bid up US Silver – to a high of $1.90 on 31 July before settling back to the Hecla bid price of $1.80. Doubtless there are punters who believe – or at least hope – that that figure is an opening gambit and that Hecla has got more set aside if, as is at least in prospect, RX Gold & Silver look to sweeten the merger deal. Stay tuned.


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