Preferred shareholders halt Eastmaque, Equinox merger

A proposed merger between Equinox Resources (TSE) and Eastmaque Gold Mines (TSE) hit a regulatory snag when the British Columbia Supreme Court recently declined to approve the combination.

The two companies announced merger plans late last year on the basis of common shareholders of Eastmaque receiving one share of Equinox for every eight shares held. For every two preferred shares of Eastmaque, holders were to receive one common share of Equinox, one common share purchase warrant exercisable for four years at $3.40, and one new Equinox production participating preferred share with a par value of $1.50.

The preferred shares were to be redeemed through a sinking fund established from 25% of the cash flow from the Eastmaque assets.

The court declined approval on the grounds that the information circular did not provide the Eastmaque preferred shareholders with adequate detailed disclosure relating to the American Girl mine and Oro Cruz projects in California.

Pierre Masse, chief financial officer at Equinox, said the company is now reviewing its options, including a resubmission of the original proposal with the additional required information.

Masse said that although the merger was approved by almost 90% of the shareholders, one preferred shareholder who owns in the order of 10% of the outstanding preferred shares petitioned the court to block the bid. Masse said the shareholder believes the company is worth more than what Equinox is offering, particularly in the case of the preferred shares. Masse noted that the court’s reasons for blocking the merger were related entirely to lack of disclosure rather than a case of fairness.

Prior to the findings of the court, Equinox announced company insiders at Eastmaque exchanged their common shares under the offer and as a result, Equinox holds about 18% of the company and has replaced the old board of directors with its own group.