Junior miner and hostile takeover target Dolly Varden Silver Corp. can go ahead with a private placement equity offering that could thwart a hostile takeover bid launched by Hecla Mining Co.

Hecla Mining challenged the private placement during a two-day hearing that was jointly held last week by the Ontario and British Columbia securities commissions.

In orders issued late Friday, the provincial regulators rejected Hecla Mining Co.’s request. The commissions have yet to publish detailed, written rulings.

Idaho-based Hecla has offered to pay about $10 million to take control of Dolly Varden, a Vancouver-based junior which has a silver exploration property in B.C. Shortly after Hecla launched the bid, Dolly Varden announced a proposed $6-million private placement that would be equal to about 43 per cent of the company’s market value. Hecla has previously said it would not proceed with its bid if the private placement goes through.

The private-placement challenge has important implications for the future of unsolicited bids in Canada. Regulators recently changed Canadian takeover rules to reduce the effectiveness of the so-called “poison pills” or shareholders’ rights plan, which had been a common takeover defence. Dolly Varden’s response to Hecla’s hostile bid led some to wonder whether private placements could emerge as a common defence.  

Fred Pletcher of Borden Ladner Gervais LLP, which represented Dolly Varden in the hearings, said it would be a mistake to assume that private placements will emerge as “the next poison pill” in terms of Canadian take-over defence tactics. The facts in this particular case suggested Dolly Varden’s private placement was not an abusive defensive tactic, he said.

“Today’s orders shouldn’t be taken as carte blache for targets to adopt private placements in response to unsolicited bids,” Pletcher said in an email Monday. When the commissions release their written reasons, he expects them to explain that if faced with future challenges, regulators will consider the facts and context of each individual case. “Boards should be careful to take focused advice when contemplating private placements or bids in similar situations. The forthcoming reasons will likely provide valuable practical guidance for bidders, targets, and their advisors.”

Dolly Varden has denied that the sole purpose of the private placement was to thwart Hecla’s hostile bid. During the hearings, Rosie Moore, chief executive of Dolly Varden, gave evidence that the private placement is necessary because the company is starved for cash. Funds from the private placement would prevent the junior miner from running out of money and entering a “hibernation” phase, she said.

For its part, Hecla argued the private placement would prevent Dolly Varden’s shareholders from deciding for themselves whether they should tender to the takeover bid.

The joint hearing was simultaneously heard by securities commission panels in B.C. and Ontario who were linked by video screens.

Financial Post

dhasselback@postmedia.com

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