Deal to privatize Opta Minerals raises concerns for minority shareholders

Welcome to Canada, where it seems the rules as practiced favour issuers, insiders and also the agents who service them. The rights of shareholders, another group necessary for capital formation, seem quite a distance on the list – and further down when minority shareholders would be the spotlight.

The latest example of that process is being played out now. The transaction concerns Opta Minerals Inc., a little TSX-listed company which has decided to be acquired by Speyside Equity Fund, a U.S. private-equity group that has teamed up with Opta’s interim chief executive.

The transaction, blessed by the financial adviser and the board, seems assured of success: SunOpta Inc., Opta Minerals’ largest shareholder (having a 65.8 percent stake) has signed an “irrevocable support and voting agreement” with the buyer. And people agreements “cannot be terminated in case of a superior proposal.” (The second-largest shareholder didn’t provide such an agreement.)

In other words, the largest shareholder, which has no board representation, wanted out also it set the price. For Mississaugua, Ont.-based SunOpta, the proceeds received are a rounding error C which may lead to a question at its annual meeting: Have you maximize value on the sale?

At the time, SunOpta (market cap, $700 million) said the sale of its Opta interest “represents a significant milestone, and we’re very happy to be concluding this chapter of our company’s history as it paves the way for SunOpta to really become a pure-play healthy and organic foods company.” Reached Monday, SunOpta said: “We aren’t likely to expand what we should said.”

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The transaction has upset one minority shareholder who has written to Opta indicating its displeasure using the offer.

So do you know the concerns?

? The low price: Opta shareholders are now being offered 52 cents a share. At this level, the consideration is underneath the recent trading price: Per month back, for example, the shares were changing hands at $1.10. On Monday Opta was trading at 75 cents.

Not only is the offer low in regards to the trading price C meaning shareholders aren’t getting reasonably limited C it’s also low in relation to net asset value. At Sept. 30, Ontario-based Opta, which produces a lot more than US$100 million in revenue, determined its “tangible net worth” to become US$17.16 million. With 18.129 million shares outstanding, that’s US95 cents a share. At the current exchange rate, the offer price is about 40 percent of Opta’s tangible net worth.

Using another measure – the multiple of EBITDA – the offer is less than three times. In some countries there’s capital punishment for lesser offences.

? The timing: The deal was announced the next day the Opta shares may be delisted. News of this delisting was indicated last September and firmed up in mid-January. The offer came carrying out a strategic review that started in June, 2014. In those days the shares traded at $1.80. Additionally, it came after certain agreements have been reached with its bankers and after restructuring efforts “were substantially complete.” Those conditions could signify better times at Opta C that will now be enjoyed through the new owner.

? The approval process: As with such transactions, approval from two-thirds of those that vote and in the most of the minority is needed. But because of the “irrevocable” support and voting agreement entered into by SunOpta (plus some insiders) it appears pointless to carry a meeting. Why? The transaction has enough votes already “to satisfy all shareholder approval requirements required.” Why? SunOpta’s stake is counted as part of the minority because it’s a “disinterested party.”

Financial Post

bcritchley@nationalpost.com