Pegasus plans shareholder protection

The novel shareholder protection rights program adopted by Pegasus Gold Corp. (TSE) is designed to prevent “creeping takeovers and other coercive acquisition tactics,” the company says.

The plan has been approved by the company’s board of directors.

“Currently United States shareholders may be excluded from certain Canadian takeover bids. Similarly, a bidder can effect a rapid accumulation of shares in the U.S. commonly known as a `street sweep,’ which would exclude our Canadian shareholders. It is clear that these tactics do not allow all shareholders to participate equally in a fair takeover premium for their shares,” says President James Foreman.

The rights offering will be triggered by certain events including the acquisition of 20% or more of the company’s shares in a transaction not approved by the board of directors. Under the plan, existing shareholders will be entitled to purchase equity in Pegasus at a 50% discount to the market price.

So-called “permitted bids” are not covered by the rights program as long as they are made in accordance with “relevant securities legislation and other reasonable conditions,” he pointed out. In addition, these bids must be approved by a majority of independent shareholders.

Under U.S. securities legislation a company owning 4.9% of Pegasus’ issued capital would have to declare its holding and make a filing with the securities commission. In Canada, a filing would have to be made at 10% and at 20% it could not purchase any more shares without making a takeover offer.

According to Pegasus, the biggest distinction between Canada and the U.S. has to do with the Toronto Stock Exchange floor exchange bid where a company can make an all-cash bid with an 11-day window without having to file a large offering circular document. Such a cash bid offer can be made to Canadian shareholders without having to make a similar bid to U.S. shareholders which Pegasus believes is unfair. About 70% of the company’s shareholders are in the U.S. and the shareholder rights program will ensure the offer is universal, Pegasus says.

Foreman told The Northern Miner that Pegasus “has been working on the plan for 18 months,” and he conceded under U.S. securities law the “board is king.”

“We think in our company the shareholder is king and we are just stewards of the shareholder’s investment. So we finally think we have come up with a way of doing right in Canada and doing right for our shareholders worldwide,” he said.

“The theme running throughout this plan is simply the fact that if they want to take the bid to our shareholders we want our shareholders to have an offer that’s made to all shareholders with full disclosure and ample time given them to absorb that disclosure so they can vote in an educated manner,” said C. J. McNamara, chief financial officer.

Subject to approval from the Toronto and American stock exchanges, the distribution of share purchase rights will be made to holders of record at the close of business Dec 12. The rights issue is non-taxable. They will not be exercisable and won’t trade separate and apart from the common shares at any time prior to a person or group acquiring, or announcing an intention to acquire 20% or more of the votes attaching to all securities of Pegasus, the company noted.