Bahamas hedge fund that cried foul over Rio Tinto’s deal with dissidents applauds AMF for ensuring fairness

Globe and Mail

PUBLISHED NOVEMBER 21, 2022

The head of a hedge fund who complained to Quebec’s security regulator about Rio Tinto PLC’s RTPPF +1.43% increase preferential deal with two dissident shareholders related to its pending takeover of Turquoise Hill Resources Ltd. TRQ-T +0.12%increase says he feels vindicated the giant miner has been forced to offer all minority shareholders the same terms.

“The Quebec securities regulator, and any other regulator that was involved, should pat themselves on the back for a job well done,” Jeff Banfield, partner with Caravel Capital Investments Inc., said in an interview. “You literally saw a $100-billion mining behemoth go, ‘Okay, okay, don’t get upset.’ ”

Rio already owns 51 per cent of Montreal-based copper miner Turquoise Hill and is attempting to buy the remaining 49 per cent that it doesn’t own for $43 a share in cash.

Last week, Quebec’s l’Autorité des marchés financier said it had “public interest concerns” about the preferential deal Rio Tinto negotiated with shareholders Pentwater Capital Management LP and SailingStone Capital Partners LLC, under which the pair were guaranteed to receive the amount being offered to all minority shareholders, plus the possibility of a windfall, pending the outcome of secret arbitration proceedings.

The AMF took action, after Bahamas-based hedge fund Caravel Capital Investments filed a complaint with the regulator on fairness grounds about the structure of the two-tiered deal.

Ed Waitzer, former head of the Ontario Securities Commission, also told The Globe and Mail that the side deal wasn’t legal. Canadian securities law has consistently backed the concept that all minority shareholders be treated equally in a takeover, he said.

Amid the scrutiny, Rio on Thursday scrapped the sweetheart deal with the dissidents, and is now offering all minority shareholders the same terms. That is, they can either receive the takeover amount being offered by Rio, or 80 per cent plus the possibility of receiving more through the court system by exercising dissent rights.

“We’re extremely pleased that the regulators stood by minority shareholders, and ensured all shareholders are treated equally,” Mr. Banfield said.

Since the deal terms were revised, the discount between the takeover offer for Turquoise Hill and the market price has narrowed, meaning there is less uncertainty about the deal failing. On Monday, shares in Turquoise Hill closed at $41.99 a share on the Toronto Stock Exchange.

Unlike the previous back-door deal, Pentwater and SailingStone have no longer agreed to withhold their votes in the shareholder meeting. Previously, the two said they would sit out the meeting, which meant that Rio was virtually guaranteed the vote would go its way. At least 50 per cent of Turquoise Hill’s minority shareholders have to vote in favour of the deal for it to succeed.

Rio, Pentwater and SailingStone all declined to comment.

The deal was originally announced in March. London-based Rio had to revise its takeover price twice to bring the Turquoise Hill board around.

Despite the endorsement from the board of Turquoise Hill, Pentwater and SailingStone both denounced the Rio offer as too low. Proxy advisory firm Institutional Shareholder Services also criticized the transaction and has advised Turquoise Hill shareholders to vote against the deal. ISS said over the long term, shares in Turquoise Hill are poised to trade dramatically higher than the takeover amount, owing to its growth prospects.

Turquoise Hill owns a 66-per-cent stake in the giant Oyu Tolgoi copper mine in Mongolia, with the Mongolian state holding the remainder.