Taseko battle puts directors on hot seat

In the seven plus years since the Supreme Court ruled on the planned going private transaction at BCE, the roles of directors have grown to be more complicated.

While a legal court relieved directors of the duty to maximise shareholder value in the context of change-of-control transaction, the directors are actually required to consider the interests of stakeholders.

A live transaction is happening on that topic, a transaction that was a tad more difficult Thursday. The transaction concerns Vancouver-based Taseko Mines, which, per month back, received a request from five percent shareholder Raging River for a meeting. Raging River had issues about the conflict posed by those directors affiliated with the privately-held Hunter Dickinson Inc., along with the underperformance of Taseko’s shares. It also put four nominees up for election.

Taseko, which recently filed a lawsuit against Ottawa seeking damages concerning the non-approval of its New Prosperity Project, responded and hang a May 10 meeting date.

Thursday, Taseko released information it said showed Raging River, had muddied the waters because it have been purchasing a “large position” in Taseko bonds. Taseko said the undisclosed stake were built with a face value of $21.8 million – 4 times its equity stake. The bonds that mature in 2019 carry a 7.75 per cent coupon. They trade at $53 per $100 face value.

In Taseko’s view, the dissidents’ financial interests were “now severely at odds with shareholders,” adding “this matter raises serious questions regarding whether Raging River wishes to profit from its bond ownership in the cost of Taseko shareholders in the event Raging River’s nominees are elected.”

Taseko based that argument on two factors:

if Raging River’s nominees are elected and if those nominees “can cause the Company to attempt certain kinds of transactions,” then its bonds “would rank in priority ahead of shareholders for repayment and cash distributions;” andif the nominees were successful and asset divestitures occurred, “the cash proceeds would need to be employed to repay other debt holders ranking in front of the bonds, and for that reason would boost the worth of the bonds in the cost of growth initiatives that might benefit shareholders.”

That’s great stuff – indeed a good review of the conflict between debt and equity holders – even if it may be construed as fear mongering given the hurdles Raging River needs to clear. Taseko’s argument is that Raging River, as an equity holder, has less to achieve of computer does as a debt holder – should it win.

So how can directors respond, given that bondholders want full repayment and given that equity holders, who may have had a difficult ride, are presumably awaiting the upturn in commodities?

If the directors’ duty would be to act within the welfare of the company and to consider all stakeholders, then is Taseko’s plan to remain the course the best approach? Would Taseko stand a better chance of survival whether it were deleveraged?

Thursday, Raging River said that it “built up a bond position as an alternative technique for participating in the turnaround of the organization and provide protection from the present board’s continued mismanagement and self-interested decisions.”

In an email, Raging River said, “like Taseko’s other largest shareholders we hold both shares and bonds. We’re one of the largest shareholders of the company and hold more shares than all the board members combined.”

bcritchley@nationalpost.com