Dominion Diamond explores options after takeover approach

It’s been an eventful year for Dominion Diamond (TSX: DDC; NYSE: DDC), with the company receiving an unsolicited takeover approach in February, shortly after CEO Brendan Bell announced his resignation in January.

The initial approach from U.S.- based Washington Corps., was made in February, but did not become public until Mar. 19. Dominion’s board dismissed the $1.1-billion, $13.50-per share proposal as “highly opportunistic” and cast doubt on Washington Corps.’ credibility in the diamond mining and marketing worlds.

Dominion also stressed that it never received a formal offer. Run by Dennis Washington, the company has mining, marine, rail transportation and heavy equipment distribution businesses in North America.

But on Mar. 27, Dominion announced that it was exploring “strategic alternatives” to maximize shareholder value. And by May 1, the company had given access to its data room to interested parties, including Washington Corps., after they signed confidentiality agreements.

The company also noted in May that its search for a new CEO was well under way, although there was no timetable for an appointment. Bell, who took over as acting CEO in late 2014 and was appointed permanently in the role in mid-2015, is stepping down in June rather than move his family to the company’s new headquarters in Calgary. The company had been based in Yellowknife.

In a note in early May, BMO Capital Markets analyst Edward Sterck noted that Dominion’s search for a CEO is effectively on hold.

“Washington requested that Dominion not appoint anyone whilst the strategic review process was being run,” he said. “We can understand Washington’s desire not to have to pay unnecessary severance costs if it is successful in acquiring Dominion, but leaving the company without leadership for an extended and unknown period of time might also seem unfair to existing shareholders.”

Dominion also faced a challenge from activist shareholders in 2015, resulting in changes in the board and management team.

In its latest financial results, Dominion reported revenue of US$570.9 million, down from US$720.5 million the previous year. It recorded a loss before income taxes of US$40.7 million compared to a loss of US$11.6 million a year earlier. Fourth quarter revenue declined to US$129.9 million from US$178.1 million a year earlier. It did not make a profit for the quarter, compared with a year earlier loss of US$27.9 million.

Affecting the results was the higher proportion of lower-value goods sold from the company’s operations. The fourth quarter was also affected by a fire at its Ekati plant and India’s demonetization. Dominion’s average price per carat sold declined to US$87 per carat in fiscal 2017 from US$177 the previous year.

This story originally appeared in the June 2017 issue of Diamonds in Canada.