Jaguar opposes Canadian Royalties deal

Yesterday Jaguar Financial (JFC-T) bought some Canadian Royalties (CZZ-T, CRYAF-O) 7% convertible debentures; today the company is trying to stop a $192-million takeover by Jien Canada Mining from going through, calling it unfair for debenture holders who loaned $137.5 million to the company.

Jaguar chairman and CEO, Vic Alboini, says Jaguar was approached by some disappointed institutional investors two days ago about the possibility of fighting the takeover.

Jien Canada, a 75-25% partnership between Jilin Jien Nickel Industry Company of China and Goldbrook Ventures (GBK-V, GBKVF-O), has offered debenture holders only $800 plus accrued interest for each $1,000 principal amount. Shareholders will receive 80¢ per share.

Canadian Royalties special committee agreed to an amended offer on Oct. 16 after two months of fighting off a lower bid.

“It took us a day to look at it, and we bought some debentures and made the decision to get involved at their request to act as an organizing catalyst,” Alboini said in an interview.

Jaguar is demanding that debenture holders receive full value for their debentures plus the 1% premium required under the indenture between Canadian Royalties and the indenture trustee.

Jaguar is now attempting to get at least 34% of debenture holders to prevent the deal from going through – Jien Canada needs two-thirds acceptance to close the deal.

If that doesn’t happen, Alboini says Jaguar is considering increasing its total debenture holding to 34% or taking the matter to court.

Alboini says that under the indenture, if there’s a change in control – when someone buys 67% of the stock or more – Canadian Royalties has to cover the full price of the debentures.

“They are trying to get the debenture holders to tender and to vote at the same time to strip their rights and accept a 21 per cent haircut,” Alboini says. “We believe that’s not legally appropriate.”

Alboini says the transactions between the shareholders and the debt holders should be separate.

Jaguar is also charging that decision makers were acting out of self interest in agreeing to the deal.

Jaguar says BMO Capital Markets, a co-lead underwriter in the debenture financing, inappropriately advised Canadian Royalties that the deal was fair.

And Canadian Royalties management, including the chairman and CEO, Glenn Mullan who owns nearly 5 million shares, agreed to a deal that benefited shareholders unfairly over debenture holders.

Albion says that if Jien were to walk away from the deal, and Canadian Royalties had to file for bankruptcy protection, the debenture holders would come before the shareholders in the ladder of priorities.

In this case, because Jien Canada is offering $192 million, Alboini says that debenture holders should receive full value which would leave 52¢ per share for shareholders.

“All I will say is Jien or Canadian Royalties needs to pay (full value) for the debentures or else this deal’s not going to happen,” Alboini said.