TORONTO, Oct. 17, 2012 /CNW/ - Pala Investments Limited announced today that it has reviewed the circular issued by the board of directors of Melior Resources in response to Pala's indirect Offer to acquire all of the outstanding common shares of Melior not already held by Pala and its affiliates for a price of $0.11 in cash for each Melior share.
Pala believes that a careful review by Melior's shareholders of the overall substance of the Melior circular would lead them to a different conclusion than that reached by Melior's special committee.
Formal Valuation of Melior Shares is Artificially High
The Melior circular notes that the offer price is below the formal valuation range. However, as acknowledged in the Melior circular, applicable securities laws require the valuation to be performed using a rigid methodology that does not permit any downward adjustments to reflect either
- the illiquidity of the Melior shares; or
- the fact that the Melior shares subject to the Offer do not form part of a controlling interest.
The Melior circular indicates that the formal valuation range reflects a purely hypothetical situation in which the Melior Board, with the support of Pala, pursued the sale or merger of 100% of the Melior shares. However, the Melior circular explicitly states that "[the formal valuator] has acknowledged that, given Pala's blocking position, in the absence of [such a situation], the value that Shareholders would be able to realize for their Melior Shares would likely be lower than [the formal valuator's] valuation range…".
The Melior circular accordingly states that "[i]t might not be possible, now or for as long as Pala holds a significant number of Melior Shares, for Shareholders to receive the fair market value set out in the Valuation for their Melior Shares either through an alternative transaction to the Offer or otherwise. Pala has indicated that it has no intention of reducing its position in Melior for the foreseeable future".
Given these economic realities and others discussed in more detail in Pala's Offer circular, Pala believes that the formal valuation range is artificially high.
Volume-Weighted Average Trading Price Cited in the Melior Circular Uses Selective Data that Does Not Fairly Reflect the Market Value of Melior's Shares
The Melior circular cites a highly selective post-announcement sample of the volume-weighted average trading price of Melior's shares that is higher than the $0.11 in cash per Melior share being offered by Pala. However, more than 50% of the trading volume during the selected period occurred during a single trading day and the buy-side demand on that day substantially distorted the volume-weighted average trading price cited in the Melior circular.
This selective post-announcement sample does not fairly reflect the value of the Melior shares and only serves to underscore the severe illiquidity of those shares, the dramatic effect that downward pressure could have on their market value and the fact that Melior shares cannot be easily sold in the market without a significant risk of a loss in value.
As noted in the Pala circular, between August 1, 2012 and September 21, 2012, the last trading day prior to the announcement of Pala's intention to make the Offer, Melior shares had not traded on 33% of the days that the TSXV was open for trading and during the 30 trading days preceding announcement of Pala's intention to make the Offer, the average daily value of all Melior shares that traded on the TSXV was only approximately $3,000.
Pala's Offer provides Melior shareholders with an attractive opportunity, in this highly illiquid stock, to realize immediate value for their holdings at a price in cash per share that represents a premium of approximately 15.8% over the closing price of the Melior shares on the TSXV on September 21, 2012, the last trading day prior to the announcement of Pala's intention to make the Offer, and a premium of approximately 16.4% over the volume-weighted average trading price of Melior shares on the TSXV during the last 20 days on which it has traded prior to the date of the announcement of the Offer.
The Offer will expire at 11:59 p.m. (Toronto time) on November 5, 2012, unless withdrawn or extended.
Questions and requests for assistance concerning the Offer may be directed to Laurel Hill Advisory Group, the information agent in connection with the Offer, and Equity Financial Trust Company, the depositary in connection with the Offer. The information agent can be contacted at 1-877-452-7184 (toll free in North America) or at 416-304-0211 or by email at firstname.lastname@example.org. The depositary can be contacted at 1‐866-393-4891 (toll free in North America) or at 416-361-0152 (overseas), or by email at email@example.com.
Pala is a multi-strategy investment company dedicated to investing in, and creating value across the mining sector in both developed and emerging markets. Pala seeks to assist companies in which it has long-term shareholdings by providing strategic advice and innovative financing solutions. For more information, visit www.pala.com.
Certain statements in the press release are forward-looking statements and are prospective in nature. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. These statements generally can be identified by the use of forward-looking words such as "may", "should", "will", "could", "intend", "estimate", "plan", "anticipate", "expect", "believe" or "continue", or the negative thereof or similar variations. Such forward-looking statements are based on estimates and assumptions made by Pala in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Pala believes is appropriate in the circumstances, including the timing, and the terms and benefits of the Offer. Many factors could cause the actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, general business and economic conditions; the failure to meet certain conditions of the Offer; claims asserted against Pala; and legislative and/or regulatory changes or actions. Such forward looking statements should therefore be construed in light of such factors, and Pala is not under any obligation, and expressly disclaims any intention or obligation, to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
SOURCE: Pala Investments Holdings Limited
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