The arguments for and against Rio’s takeover bid for Turquoise Hill Resources continue, with proxy advisor Glass Lewis recommending that the company’s shareholders vote in favour of the offer.
This is in contract to opinions expressed by Pentwater Capital Management and SailingStone Capital Partners, which combined hold about 14 per cent of the Canadian miner. They had previously claimed that Rio’s plan of arrangement – to acquire 49 per cent of the shares it doesn’t own at $C43 – undervalues the company.
In a statement, Glass Lewis noted that the company and the board undertook a reasonably comprehensive review process in the months preceding the execution of the arrangement agreement.
“We recognise the company’s standalone case could also be reasonably viewed as carrying a relatively elevated risk profile, … but we are inclined to believe that Rio Tinto’s current offer represents a reasonable exit price and a compelling market premium for minority shareholders, on balance,” it said.
Turquoise Hill’s board chair Peter Gillin said the Glass Lewis recommendation validated the work of the five independent directors who devoted six months to an extensive process of analysis and negotiation, to secure a deal that is in the best interests of the company and fair to the company’s minority shareholders.
“The arrangement provides Turquoise Hill’s minority shareholders the opportunity to crystallise the value of their investment, securing a 67 per cent premium to the closing share price on March 11, 2022, the last trading day prior to Rio Tinto’s initial proposal to acquire the minority shares,” he said.
“Moreover, the transaction, if approved, will relieve minority shareholders from the financing, technical, market and geo-political risks and uncertainties facing the company associated with developing and operating a massive, complex block-cave mine in a remote part of Mongolia.”
However, the endorsement was swiftly followed by a rebuke from another proxy adviser, Institutional Shareholder Service, which said: “While the offer provides an escape from the immediate downside, certainty of value today comes at a cost that is too high to be tolerated… the severity of the downside risk is outweighed by the magnitude of the discount implied by the offer.”
Shareholders must vote prior to 10:30 a.m. (Montreal time) on October 28, 2022.