Queries Offer made for Pamour shares

I read recently that Giant Acquisition Corp., a wholly-owned subsidiary of Giant Resources is offering to buy all the outstanding common shares of Pamour Inc. for $10 per share. The remainder are held by Jimberlana Holdings Corp.

As the offer is conditional upon at least 90% of the common shares, being validly tendered and not withdrawn I can’t help wondering what happens to those of us who bought the shares when they were trading at $17. J.M., Miami, Fla.

Although a number of shareholders may take a substantial bath as a result of this offer, Toronto brokers Capital Group and Nesbitt Thompson consider it fair and reasonable in light of prevailing market conditions.

Priced at $10 per share for the 5.8 million shares that Giant Resources does not already own, it was made at a time when the Pamour Inc. issue was trading on the Toronto Stock Exchange at $6.75.

Giant already holds a 51% stake in Pamour through its Canadian subsidiary. In the interim, the share price has risen to $9.88 in a 52-week range of $17.25 and $6. Pamour has about 11.9 million shares outstanding.

Scheduled to expire at midnight, April 7, the offer is supported by the Pamour board of directors who are advising shareholders to accept it. “It is always difficult to know what the right or the wrong value of a company is,” said Pamour’s chief financial officer Adrian White.

According to White, the decision of the Pamour directors to support the offer was based on the advice of Toronto-based Capital Group which considered the offer reasonable in light of prevailing market conditions.

The fact that Pamour is essentially a holding company in the Giant Resources group was also taken into account, he said. “If most of the shareholders decide to tender, Pamour automatically becomes a totally different kind of company because only a few shares will eventually be traded,” said White. “There is a feeling out there that a holding company has a different market value than a company that operates directly.”

As reported (N.M., Feb 22/88) Pamour’s former mining properties at Timmins are under the control of Giant Yellowknife Mines, in which Pamour has a 41.8% interest.

Giant Yellowknife has gold mining operations in Timmins and the Northwest Territories.

Before Giant Resources made its bid for the outstanding Pamour shares, it hired Toronto-based Nesbitt Thompson to determine Pamour’s market value. According to White, the Nesbitt Thompson valuation was based on three factors: price/earnings multiple analysis, discounted cash flow analysis and adjusted net asset value method.

“Pamour’s adjusted net asset value proved to be the best valuation method because in Nesbitt’s estimations, Pamour is essentially a holding company,” said White.

“I suspect that shareholders who bought their shares at $17, made the purchase before the Oct 19 market downturn,” added White who says they are not required to tender. “The share price may return to that level but that is something shareholders will have to wrestle with.”