Dolly Varden investor Hecla scraps takeover bid for outstanding stock

Investor had filed objection to company’s C$6 million stock placement

By Devika Patel

Knoxville, Tenn., July 25 – Dolly Varden Silver Corp. investor Hecla Mining Co. said that it has withdrawn its takeover bid offer for the company’s outstanding shares. The withdrawal stems from the investor’s objections to the company’s planned C$6 million private placement of stock.

“We are disappointed with Dolly Varden's expensive debt financing followed by its planned dilutive private placement that effectively acts as a poison pill, raising the cost of acquiring Dolly Varden by more than 50%,” Hecla’s president and chief executive officer Phillips S. Baker Jr. said in a press release.

“Despite withdrawing our bid, Hecla will invest to maintain our 15.7% interest in Dolly Varden because of our long term commitment to the Dolly Varden property. We are disappointed that the Securities Commissions' decisions take away the ability of existing shareholders to choose our premium bid, effectively forcing their continued ownership of Dolly Varden.”

As previously reported, Hecla, based in Coeur d'Alene, Idaho, announced on July 8 that it was starting a takeover bid for all of the company’s outstanding shares not owned by the investor and its affiliates for C$0.69 per share in cash.

In a letter to Dolly Varden shareholders, Hecla stated that the “dilutive private placement ... is not in the interest of all shareholders. Hecla believes that the private placement is an attempt to obstruct Hecla’s premium cash offer. Hecla has asked Dolly Varden’s board of directors to support its offer and refrain from obstructionist tactics.”

The investor also said that it won’t proceed with the takeover bid if the private placement is completed, and it is also applying to the relevant regulatory authorities for an order to stop the placement on the grounds that it is an improper defensive tactic. Hecla stated that the placement could increase the number of Dolly Varden shares “by up to 43% and therefore is highly dilutive. Worse, the deal includes an over-allotment option that Dolly Varden has not publicly disclosed, and that would be even more dilutive, increasing the total number of shares issued by more than 57%.”

Hecla also objected to the broker shares, which are being issued at an average price of C$0.60 per share, which is 15% lower than Hecla’sC$0.69 cash per share bid.

The company said on July 5 that it plans to sell 2,142,857 flow-through common shares at C$0.70 apiece and 7,258,064 common shares at C$0.62 per share. The prices per share are a 9.38% premium and a 3.13% discount, respectively, to the July 4 closing share price of C$0.64.

Based in Vancouver, B.C., Dolly Varden is a resource exploration company focused on the development of the Dolly Varden Silver Mines property in northwestern British Columbia.

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