In the seven plus years since the Top court ruled around the planned going private transaction at BCE, the roles of directors have become more difficult.
While a legal court relieved directors of their duty to maximize shareholder value poor change-of-control transaction, the administrators are actually necessary to consider the interests of all stakeholders.
A live transaction is happening on that topic, a transaction that became a tad more complicated Thursday. The transaction concerns Vancouver-based Taseko Mines, which, a month back, received a request from five per cent shareholder Raging River for any meeting. Raging River had issues about the conflict posed by those directors associated with the privately-held Hunter Dickinson Inc., along with the underperformance of Taseko’s shares. It also put four nominees up for election.
Taseko, which recently filed a case against Ottawa seeking damages concerning the non-approval of its New Prosperity Project, responded and hang a May 10 meeting date.
Thursday, Taseko released information it said showed Raging River, had muddied the waters since it had been purchasing a “large position” in Taseko bonds. Taseko said the undisclosed stake had a face worth of $21.8 million – four times its equity stake. The bonds that mature in 2019 carry a 7.75 per cent coupon. They trade at $53 per $100 face value.
In Taseko’s view, the dissidents’ financial interests were “now severely at odds with shareholders,” adding “this matter raises serious questions regarding whether Raging River wishes to profit from its bond ownership in the expense of Taseko shareholders in the event Raging River’s nominees are elected.”
Taseko based that argument on two factors:
if Raging River’s nominees are elected and if those nominees “can make the Company to attempt certain kinds of transactions,” then its bonds “would rank in priority in front of shareholders for repayment and cash distributions;” andif the nominees were successful and asset divestitures occurred, “the cash proceeds would need to be employed to repay other debt holders ranking in front of the bonds, and therefore would enhance the worth of the bonds at the expense of growth initiatives that may benefit shareholders.”
That’s all good stuff – indeed a fair review of the conflict between debt and equity holders – even when it may be construed as fear mongering because of the hurdles Raging River needs to clear. Taseko’s argument is that Raging River, as an equity holder, has less to gain of computer does as a debt holder – should it win.
So how can directors respond, considering that bondholders want full repayment and considering that equity holders, who may have had a difficult ride, are presumably waiting for the upturn in commodities?
If the directors’ duty is to act in the best interest of the company and also to consider all stakeholders, then is Taseko’s plan to remain the program the best approach? Would Taseko stand a better chance of survival if it were deleveraged?
Thursday, Raging River asserted it “built up a bond position as a substitute technique for participating in the about face the company and supply protection from the current board’s continued mismanagement and self-interested decisions.”
In an email, Raging River said, “like Taseko’s other largest shareholders we hold both shares and bonds. We are among the largest shareholders from the company and hold more shares than all of the board members combined.”
bcritchley@nationalpost.com
