|Shareholder Aims to Block Merger of Tyhee Gold and Santa Fe Gold|
It’s certainly not in every instance, although sometimes it seems like it, when a merger is announced some law firm pops out a new release informing shareholders that a law firm is investigating the transaction for any possible breach of fiduciary duty. It’s the ambulance chaser gone digital. A quick Google search will show you just how frequently lawsuits are brought against a company and its board members when they scratch a deal to merge with another company. In plenty of instances, some shareholder doesn’t agree that the price is right.
By the way, we didn’t go through them all of course, but a Google search for "investor files lawsuit fiduciary duty merger" and it yielded more than 400,000 results. Think we’ll see one with the freshly minted pact to blend Albertsons and Safeway (NYSE:SWY)? Probably.
It is not always the mega-mergers that have shareholders taking it to a judge. Tyhee Gold Corp. (TSX-Venture:TDC) said today that an alleged stakeholder in Santa Fe Gold Corp. (OTCQB:SFEG) has stepped up and cried "fiduciary foul" in a bid to stop the two companies from joining. A quick look at Santa Fe shows that they disclosed the lawsuit on Wednesday.
On January 23, British Columbia-based Tyhee said that it entered into a merger agreement with Albuquerque-based Santa Fe, in which Tyhee would acquire all of the shares of SFEG, payable through shares of TDC. Tyhee is looking to take control of Santa Fe’s precious metal properties and assets in New Mexico and Arizona, namely the Summit gold mine in northwestern New Mexico, which was in commercial production from the second quarter of 2012 through November 2013 until capital constraints forced Santa Fe to suspend operations. In the deal, Santa Fe Gold shareholders would receive 0.9 shares of Tyhee for each share of SFEG and 0.45 of a warrant, with a full warrant entitling a shareholder to buy a share of TDC at 25 cents.
Tyhee also agreed to provide a $3.0 million bridge loan to Santa Fe, who was also contemplating $23.0 million in debt restructuring to help the company get its books back in order before becoming part of Tyhee. Through February 18, Tyhee had provided $1.52 million to Santa Fe as part of the loan. Dr. W. Pierce Carson, SFEG president and chief executive, said that he believed the deal would "deliver substantial value to Santa Fe stockholders" in the future.
The plaintiff, Tony Cavanaugh et al., doesn’t agree apparently. According to a statement by Tyhee on Friday, the plaintiff filed in the Second Judicial District Court of the State of New Mexico in Bernalillo County "a purported class action complaint on behalf of himself and all others similarly situated, against Santa Fe, the five current members of its Board of Directors, Tyhee and Tyhee's wholly-owned subsidiary, Tyhee Merger Sub, Inc." Brower Piven, a securities firm, also issued press on Friday saying that the shareholders of Santa Fe Gold had filed a class action case, alleging a breach of fiduciary duty by the SFEG board. Brower Piven’s statement doesn’t mention Cavanaugh.
In the complaint, the plaintiff contends that Santa Fe’s board breached its fiduciary duty by trying to merge with Tyhee by utilizing an unfair process without proper material disclosures and at too cheap of a price. According to the plaintiff, Tyhee is guilty of aiding and abetting Santa Fe’s conduct. The plaintiff wants the merger stopped and seeks, amongst other things, damages and attorney’s fees.
The boards at both Santa Fe and Tyhee believe the plaintiff’s claims lack merit and said that they will fight the charges.
In Friday action, shares of TDC are trading down 4.6 percent at 10.5 cents, while shares of SFEG are off by 3.5% at 6.3 cents.