Mr. James Gowans of the Washington corporations reports
THE WASHINGTON COMPANIES DISCLOSE ALL-CASH PROPOSAL TO ACQUIRE DOMINION DIAMOND CORPORATION FOR US$13.50 PER SHARE
The Washington corporations, a group of privately held North
American mining, industrial and transportation businesses founded by
industrialist and entrepreneur Dennis R. Washington, have made a proposal to the board of directors of Dominion
Diamond Corp. for a transaction
in which Washington would acquire all of the outstanding common shares
of Dominion for $13.50 (U.S.) per share in cash, representing a 36-per-cent
premium to Dominion's closing stock price on March 17,
2017,
and a 54-per-cent premium to the price when discussions ended on March
15, 2017.
The proposal, which was made in a letter to Dominion's board of
directors on Feb. 21, 2017, is not conditional on financing but is
conditional on Washington conducting confirmatory due diligence during a
period of exclusivity and negotiating an acquisition agreement. After
multiple discussions and concessions made by Washington over a
three-week period, Dominion's board of directors continues to refuse to
grant Washington access to due diligence, which Washington has
stated could lead to an increased offer price, on terms acceptable to
Washington.
Washington has a long record of growing its businesses throughout
North America, with expertise in the mining industry and the Canadian
market. Washington strongly supports Dominion's plans to develop the
company's mining assets, while positively impacting current and future
employees and benefiting local communities. Washington would provide
Dominion opportunities for further growth and work closely with
management to put in place an appropriate long-term cost structure to
preserve the operational and financial flexibility for management to
execute its strategic plan. The nature of the mining business favours an
owner such as Washington, which has a deep understanding of the sector,
a long-term view and permanent capital to invest in the business over
multiple decades.
"We believe our proposal is extremely compelling and clearly in the best
interests of Dominion and all of its stakeholders, including
shareholders, customers, employees and communities," said Lawrence R.
Simkins, president of Washington. "If the transaction is consummated, it
would provide Dominion shareholders with a substantial cash premium and
offer superior value to that which Dominion could realize through
ongoing execution of its plan or any other available alternative
transaction. As a part of Washington, Dominion would receive
significant, long-term investment to develop its most promising growth
assets, creating meaningful opportunities for its employees and the
communities in which it operates.
"We are disappointed that Dominion's board has
thus far prevented Washington from moving ahead with its proposal under
which shareholders would receive a substantial premium and immediate
liquidity, but we remain fully committed to completing this transaction."
Background on discussions
Following Washington's proposal to Dominion's board of directors on
Feb. 21, 2017, the companies engaged in discussions and an in-person
meeting to discuss the terms upon which Washington would be given access
to due diligence and a potential path forward. On March 15, 2017, the
Dominion board of directors advised that it would not grant Washington
access to due diligence unless Washington agreed to a broad 12-month
standstill and would not agree to an exclusivity period as requested by
Washington for it to complete its due diligence. Despite reasonable
accommodations, which included Washington agreeing to a partial
standstill, providing that it would not acquire shares, make an
unsolicited offer or sponsor a proxy fight during the standstill period
and offering generous carveouts to its exclusivity request, Dominion
still refused. Washington made it clear to Dominion that, while it would
agree to certain standstill restrictions, under no circumstances would
it agree to be restricted from publicly disclosing its proposal if the
parties could not come to a definitive agreement. As a result,
discussions have ended.
The proposal letter sent by Washington to Dominion Diamond's board of
directors on Feb. 21, 2017, follows.
Dear Mr. Gowans and directors
The Washington corporations are pleased to submit
this non-binding proposal to acquire 100 per cent of the equity of Dominion
Diamond in an all-cash transaction
on substantially the terms described in
this letter.
Based on our knowledge of the company from publicly available sources,
we are proposing to acquire 100 per cent of the company's outstanding common
shares in cash at $13.50 (U.S.)/share, which represents a 35-per-cent premium to the
closing price of $9.98 (U.S.) on Friday, Feb. 17. The proposed
transaction allows all of the company's shareholders to realize
immediate, significant cash consideration for their shares. The making
of a binding proposal with respect to the proposed transaction will be
subject to our confirmatory diligence, as discussed below, and the
negotiated terms of a customary definitive acquisition agreement. We anticipate that the proposed transaction
would be structured as a statutory plan of arrangement under the Canada
Business Corporations Act. Subject to the completion of due diligence we
may value the company higher than the indicated price.
The Washington corporations are a group of individual privately held
companies headquartered throughout the United States and Western Canada,
conducting business internationally. Our purpose is to reliably provide
equipment, technology, service and special expertise that aid our
customers to operate more efficiently and more profitably. We have
focused our businesses in the areas of mining, marine transportation,
rail transportation, heavy equipment distribution, environmental
remediation, and aviation technology and service. We have a long history
of successfully completing transactions of this nature in an expedient
fashion. We have consistently demonstrated our commitment to our
businesses by supporting our management teams' growth initiatives
through high levels of service and the timely and prudent investment of
capital. In particular, we are committed to mining in North America and
have deep experience as the owner and operator of Montana Resources,
which is an open-pit copper and molybdenum mine in Butte, Mont., one
of the largest in North America.
We, along with our team of advisers, have followed the company closely
and are familiar with its operations, assets and with the diamond
industry. We strongly support management's plans to develop the
company's mining assets and to continue to pursue strategies for further
growth. In particular, we believe that development of the Ekati mine Jay
pipe is important to all of the stakeholders of the company, including
the local economy, and is an integral part of the value of the business.
We also believe that the nature of the mining business favours a
shareholder with a long-term view, patience and effectively permanent
capital to invest in the business over multiple decades.
Given our long-term investment philosophy, we anticipate starting with a
conservative capital structure that will allow us to continue
development of the Ekati mine Jay pipe and pursue the company's current
mining plan, while providing opportunity for further growth. We have the
resources to finance the proposed transaction from existing liquidity.
However, we will likely access the debt markets for a portion of the
consideration in order to provide the company with the most appropriate
and cost-effective long-term capital structure. Based on our experience,
we are confident that we will be able to arrange the debt financing
needed to support this acquisition and do not expect the acquisition
agreement or related documentation to contain a financing contingency.
Any changes to this proposed leverage and structure will be assessed in
collaboration with management to ensure that we preserve the operational
and financial flexibility necessary for the management to execute its
business plan.
As noted above, the making of a binding proposal to complete the
proposed acquisition would be subject to: (a) negotiation of a mutually
satisfactory binding acquisition agreement and related documentation
with standard representations, warranties, conditions and other
provisions; and (b) completion of confirmatory due diligence, including:
site visits, meeting with management and customary operational,
financial, legal and tax due diligence. The acquisition agreement would
be subject to standard conditions of closing, including, but not limited
to, satisfaction of any required regulatory approvals (which are not
expected to be of any consequence).
We have been working with advisers and the publicly available
information to further our understanding of the diamond industry and the
company in particular. We are prepared to move expeditiously to complete
our due diligence and to negotiate the definitive acquisition agreement
within a 45-day confirmatory due diligence period, which would be
extendable by 15 days if we are still working in good faith to negotiate
the definitive acquisition agreement after 45 days and to do so in a
manner which would not be disruptive to the company.
Until such time as we and the company enter into a definitive
acquisition agreement, any public disclosure by the company of the
existence or contents of this letter would be premature. If this letter
is accepted and agreed to, the company agrees that the existence and
contents of this letter shall be held in strict confidence by the
company and, except as required by law or the rules and regulations of
any applicable stock exchange and after prior notice to Washington to
the extent permissible, no disclosure of the contents of this letter
shall be made to any person whatsoever other than its directors,
officers, employees and/or advisers who need to know such
information for the purpose of proceeding with the proposed transaction.
Based upon the substantial premium we expect to be offering to your
shareholders, the benefits involved for all of your stakeholders, and
the substantial time and resources we are spending on the proposed
transaction, we request an exclusivity period for Washington to complete
its outstanding diligence and enter into a definitive acquisition
agreement with the company. If this letter is accepted, in consideration
of the time that will be expended and the expenses incurred by us in
connection with pursuing the proposed transaction, you agree that for a
period commencing on the date of your acceptance of this letter until 45
days from the date we are first given access to a formal and
substantially complete data room with due diligence materials (which
period shall be extended by 15 days if we are still working in good
faith to negotiate the definitive acquisition agreement after 45 days):
(a) you and your affiliates will not, and will not permit your and their
respective officers, directors or agents, directly or indirectly, to take any action to solicit, initiate,
encourage or facilitate any inquiries regarding, or the making of, any
acquisition proposal (as hereinafter defined); and (b) you will
promptly advise us if you receive any inquiries or proposals from a
third party or their agents regarding an acquisition proposal, including
the material terms of any such acquisition proposal. The term
acquisition proposal means any offer or proposal for, or any
indication of interest in: (i) the direct or indirect purchase of any of
the shares of the company or any successor; (ii) any merger,
amalgamation, arrangement or other business combination involving the
company or any successor; (iii) the acquisition of any equity interest
in, or any material portion of, the assets of the company or its
subsidiaries or any successor or any assets used in the business of the
company; or (iv) any offer or proposal for a securitization,
monetization or similar arrangements relating to the company, its
business or its assets, other than the transactions contemplated by this
letter. You represent and warrant to us that you and your agents are not
currently involved in any discussions or negotiations with respect to
any acquisition proposal by any person or entity other than Washington.
Except for the two preceding paragraphs (which are intended to be
binding), this letter is non-binding and does not create or impose any
legal obligation on any party. In particular, notwithstanding anything
in this letter to the contrary, this letter is a statement of our
intentions, shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict
of laws, is not a legally binding agreement on Washington and shall not
give rise to any legal consequences in any respect. Washington will not
be legally bound to purchase the company until the parties enter into
binding definitive agreements.
Should you have any questions regarding this letter, please contact
Larry Simkins at 406-523-1383.
We hope you will agree that the prompt implementation of the proposed
transaction is in the best interests of the company and all of its
stakeholders. The proposed transaction provides all shareholders
immediate, substantial cash consideration for their shares, while
providing the company a stable, long-term owner focused on growing the
company. This will provide significant employment and economic benefit
over a mine life that may be extended by decades, positively impacting
the company's current and future employees and the communities of the
first nations, the Northwest Territories and all of Canada. We ask that
you respond to us by Feb. 28, 2017. We look forward to hearing from
you, so that we can begin to move forward together with this exciting
transaction.
Sincerely,
Washington corporations
Lawrence R. Simkins, president
BDT & Company LLC is providing financial advice to the Washington
corporations, Skadden, Arps, Slate, Meagher & Flom LLP is providing legal
counsel in the United States, and Blake, Cassels & Graydon LLP is providing legal
counsel in Canada.
We seek Safe Harbor.
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