The S&P/TSX Global Mining Index has declined by more than 40% over the past nine months. Depressed equity valuations and the inability to access traditional sources of financing have left some mining companies vulnerable to the increased risk of becoming the target of an unsolicited take-over bid.
Responding to a take-over bid requires informed decision-making in the context of high pressure, high visibility and tight deadlines. With careful planning and preparation, mining companies can enhance their ability to respond effectively to an unsolicited take-over bid.
Mining companies should consider taking the following steps to prepare for a potential unsolicited take-over bid:
- Assemble a Response Group. Assemble a response group which may include members of the board of directors, senior officers, and legal and financial advisors;
- Develop Profiling Systems. Develop systems to profile current industry trends, shareholders, analysts and possible interested parties to increase the likelihood of early detection of a possible take-over bid and provide a current understanding of key relationships in the event of a take-over bid;
- Monitor Trading Activity. Monitor trading activity, with particular focus on significant changes in volume, large block trades, unaccounted-for price increases, concentrated accumulation patterns in individual or nominee names and purchases by major shareholders;
- Monitor Reports and Filings. Monitor early warning reports, alternative monthly reports and insider filings;
- Develop a Communications Plan. Develop a communications plan and select spokespersons and teams matched to stakeholders – including institutional investors, individual shareholders, the media and employees – to facilitate open and direct communication and message consistency;
- Maintain and Update Due Diligence Materials. Maintain and update due diligence materials that would be made available in a data room in the event that an unsolicited bid is announced and the company concludes that it should facilitate dealings with other potential “friendly” acquirors, as well as a draft confidentiality/standstill agreement that potential acquirors would sign prior to gaining access to the data room;
- Review Potential Transaction Impediments. Review potential impediments to an unsolicited take-over bid, such as loan covenants, regulatory requirements, competition and foreign investment issues;
- Consider Adopting or Updating a Shareholder Rights Plan. Consider whether to adopt a shareholder rights plan. If the company already has such a plan, consider the current status of the plan to ensure that it incorporates the latest technical improvements, is tailored to the company and provides the company with enough time to assess the merits of any unsolicited take-over bid and explore other options to ensure that shareholders obtain full and fair value for their shares; and
- Develop a Response Plan. Prepare the board to deal with a potential takeover by reviewing strategic issues, business plans and corporate governance policies, developing a response plan and scheduling presentations by legal and financial advisors. Call a special meeting of the board in response to an announced bid or public bear hug and arrange for presentations by managers, lawyers and bankers.