Manalta issues poison pill to delay Luscar bid

The directors of Manalta Coal Income Trust have recommended that shareholders reject a $550-million takeover bid by Luscar Coal Income Fund, approving a shareholders’ rights protection plan to delay the proceedings.

The rights plan, also known as a “poison pill,” extends to Oct. 1 — the same day that holders of Manalta instalment receipts are to make a final payment of $4 per receipt. Under the takeover proposal, that instalment, worth $348 million, would be paid by Luscar. Manalta, Canada’s largest coal producer, says the extension is designed not to block the takeover but to delay it so that the company can consider other options. Robert Young, chairman of a special committee formed to consider Luscar’s proposal, says several companies are evaluating Manalta’s assets.

Under the poison pill, holders of Manalta instalment receipts will be able to buy units at a 50% discount to the market, diluting units such that a takeover by Luscar would be much more expensive.

Jack McMahon, president of Luscar, describes the move as “unfair and high-handed,” adding that the poison pill provision is not in the best interests of Manalta receipt-holders since they would be required to foot the bill for the final instalment of $348 million.

The proposed takeover is based on the purchase by Luscar of 87 million outstanding Manalta Trust instalment receipts. Luscar is offering 0.335 of a unit in exchange for one instalment receipt, and will pay the $4 instalment on behalf of Manalta unit-holders. Luscar says that by combining the companies’ operations, a savings of $70 million can be realized over a 4-year period, with annual output projected at 41 million tonnes.