Peruvian shareholders fight Gabriel deal

Peruvian Gold (PVO-V) has been chastised by major shareholder Bradstone Equity Partners for not seeking shareholder approval for the company’s takeover bid of Gabriel Resources (GVU-V).

Peruvian’s takeover bid for Gabriel Resources was initiated to acquire control of Gabriel’s seven Romanian gold properties. Gabriel’s most attractive asset, the Rosia Montana gold project, holds an inferred resource of 48 million tonnes grading 1.7 grams gold, for 2.6 million contained ounces.

The proposed agreement would see Gabriel shareholders exchange each of their shares for 1.4 Peruvian shares. That would mean Gabriel’s acceptance of the deal would require Peruvian to issue 33.3 million shares. Peruvian has 14.2 million shares outstanding, or 17.2 million fully diluted, so the Gabriel transaction would represent a substantial dilution.

Bradstone Equity Partners holds 2.6 million shares of Peruvian Gold, about 18.4% of the total. The firm has requested board representation, but does not now have a representative on Peruvian’s board.

Bradstone states that Peruvian has a legal and ethical obligation to afford its shareholders the right to approve the Gabriel transaction. In addition, a group of shareholders with an aggregate 16% stake have asserted that they, too, are entitled to full disclosure with respect to Gabriel and its assets, as well as the right to vote on the merger.

In a press release, Bradstone listed four reasons why Peruvian should give its shareholders the right to vote on the Gabriel deal:

* The takeover bid is, in effect, a merger of the two companies, which typically requires approval from shareholders of both companies.

* In order to permit shareholders to make a reasoned judgment, both companies should provide prospectus-level disclosure, as well as financial information.

* The merger would result in an entirely new focus for Peruvian, which, under British Columbia’s Company Act, requires shareholder approval.

* Based on Bradstone’s information, Albion Holdings, a company controlled by Gabriel Chairman Frank Timis, would hold in excess of 30% of the issued and outstanding shares of Peruvian if the deal goes through. This would represent a change in the control of the company taking place without the approval of Peruvian shareholders.

Bradstone has requested that the VSE require Peruvian to seek shareholder approval and has requisitioned a general meeting of shareholders under the provisions of the Company Act.

In response to Bradstone’s actions, Peruvian states that shareholder approval is not required. To impose it would be to kill the deal, the company continues, because during negotiations with Gabriel, Peruvian was informed that if a transaction was not concluded in a timely manner, Gabriel would seek other sources of financing for its projects.

The takeover bid is subject to a number of conditions, including the submission by Gabriel shareholders of not less than 75% of outstanding shares. A number of Gabriel shareholders, who hold a total of 14.3 million shares (about 60% of the total outstanding), have entered into a lock-up agreement with Peruvian.

The proposed deal specifies a $1-million break-up penalty in the event that either party fails to meet its obligations.

Peruvian states that the merger would not be a disposition of the company’s assets in Peru; it would only represent the acquisition of new assets and there would be no change in the business of the company.

Peruvian also states that the two companies negotiated the terms of the takeover at arms length and that, to its knowledge, there are no common directors, officers or other insiders, and no company or individual holds more than 10% of both companies.

Peruvian Gold reported a net loss of $4 million during 1997, compared with a $1.4-million loss in 1996. The higher loss was attributed to the write-off of abandoned mineral properties and deferred costs. As of Dec. 31, 1997, Peruvian Gold had a working capital of $12.7 million.