Thirdcoast Limited

June 28, 2012 14:20 ET

Thirdcoast Limited Mails Supplementary Directors' Circular and Makes No Recommendation to Shareholders as to Whether to Accept or Reject the P&H Offer

GODERICH, ONTARIO--(Marketwire - June 28, 2012) - Thirdcoast Limited ("Thirdcoast" or the "Company") announces that it has mailed a supplementary directors' circular (the "Circular") in response to the unsolicited offer from Parrish & Heimbecker, Limited (the "Offeror") to Thirdcoast shareholders to purchase all of the issued and outstanding common shares of Thirdcoast (the "Common Shares") for $155 per Share (the "Unsolicited Offer"). The Circular is available on the Company's website at www.thirdcoast.ca and on SEDAR at www.sedar.com under the Company's profile.

The Circular contains no recommendation of the independent members of the board of directors (the "Board of Directors") as to whether Thirdcoast shareholders ("Shareholders") should accept or reject the P&H Offer. Shareholders should consider the information contained in the Circular carefully and make their own decisions. Shareholders who are in doubt about how to respond to the P&H Offer, should consult their investment dealer, stockbroker, lawyer or other professional advisors.

RECENT DEVELOPMENTS

As part of the strategic review process being conducted by the independent committee of the Board of Directors (the "Independent Committee"), in consultation with its financial advisor, Scotiabank, the Independent Committee is working on an alternative asset transaction involving the sale of its grain business which would result in Shareholders receiving a superior return to the Unsolicited Offer (the "Superior Transaction"). There is no guarantee that a Superior Transaction will be entered into, but if it were, it is expected that the net proceeds of such Superior Transaction (after all taxes and transaction costs) combined with Thirdcoast's cash and liquid investment balance would be in excess of $155 per share, and result in cash being paid out to Shareholders in the form of a dividend. In addition, Shareholders will continue to own G.S. Dunn, which generated an average of $2.9 million of EBITDA per year over the past five years. The Company has adopted the Shareholder Rights Plan in order to provide the Independent Committee and Scotiabank with more time to solidify the Superior Transaction.

In response to the process being conducted by the Independent Committee on behalf of the Shareholders, the Offeror has filed a Statement of Claim with the Ontario Superior Court of Justice in order to try and prevent the Company from completing an asset sale. The Offeror believes that Thirdcoast is not permitted to sell its grain business without first obtaining the approval of Shareholders. Thirdcoast does not believe Shareholder approval is necessary given that the grain business does not constitute "all or substantially all the property" of Thirdcoast, which would be the test under applicable corporate law.

The Offeror has also filed an application with the OSC for an order to cease trade the rights and all securities issued or issuable pursuant to the Shareholder Rights Plan and for certain related orders. Thirdcoast has filed its own application with the OSC for the following orders: (i) to cease trading under the lock-up agreements entered into by the Offeror with certain shareholders of Thirdcoast due to the coerciveness of the lock-up agreements; and (ii) requiring the Offeror to deliver a new offer and circular to Shareholders providing the correct information about the Unsolicited Offer. The Independent Committee believes that if all Shareholders are allowed to receive the greatest consideration for their Common Shares without being tied to the coercive lock-up agreements, the Independent Committee will be able to pursue either an asset sale or an alternative take-over bid which would be superior to the consideration available under the Unsolicited Offeror.

A hearing has been scheduled for July 4, 2012 to hear both the applications filed by the Offeror and Thirdcoast.

The Independent Committee and Scotiabank continues to work with the other interested parties to provide them with all of the required confirmatory due diligence in anticipation of arriving at a binding offer.

REASONS FOR MAKING NO RECOMMENDATION

After careful consideration of the risks and opportunities presented by the Unsolicited Offer, the members of the Independent Committee found themselves unable to make a recommendation to Shareholders to accept or reject the Unsolicited Offer. Ultimately, they concluded, it is a choice that will rest on each Shareholder's personal circumstances, appetite for risk and tolerance of uncertainty.

The Independent Committee, with its financial advisor Scotiabank, has conducted a market canvass of companies they thought were likely to be interested in making a superior proposal, whether in the form of a bid for the Common Shares or an asset sale which would result in Shareholders receiving greater consideration than available under the Unsolicited Offer, and had the ability to act quickly to make such a decision. A significant number of companies have been contacted during this process. Several of the parties contacted executed confidentiality agreements and conducted some degree of due diligence, including visits to Thirdcoast's facilities. As discussed above under "Recent Developments", Thirdcoast has received non-binding expressions of interest which require further time to advance to a binding offer. Thirdcoast has adopted the Shareholder Rights Plan to provide the Independent Committee and the Board of Directors with the additional time required to determine whether a superior proposal is available. However, the application filed by the Offeror with the OSC raises the possibility that the Shareholder Rights Plan will be cease traded before the Independent Committee has completed its work in regard to trying to source better value than the Unsolicited Offer for Shareholders. Thirdcoast intends to vigorously defend the Shareholder Rights Plan at the hearing on July 4.

Thirdcoast has also filed an application with the OSC in regard to the impropriety of the lock-up agreements entered into by the Offeror. If Thirdcoast is successful in cease trading under the lock-up agreements, the options available to the Independent Committee to source better value than available under the Unsolicited Offer will increase. This matter will also be heard by the OSC on July 4.

Accordingly, while a financially superior offer may be made before the expiry of the Unsolicited Offer, the Unsolicited Offer is the only offer to purchase all of the outstanding Common Shares that is open for acceptance by Shareholders at the date of this Directors' Circular. Shareholders who are attracted by the certainty of an opportunity to sell their Common Shares for cash at this time may prefer to accept the Unsolicited Offer. Alternatively, such Shareholders may want to wait for the outcome of the asset sale and/or hearing and, if necessary, deposit their shares on July 5, 2012 by using the procedures as described in the Offer and Circular delivered by the Offeror to Shareholders on May 31, 2012.

The Board of Directors will provide a further update to Shareholders after the OSC hearing on July 4, 2012. To the extent Shareholders decide to tender their Common Shares to the Unsolicited Offer, Shareholders will have the opportunity to later withdraw their Common Shares from the Unsolicited Offer should the OSC rule in favour of Thirdcoast on July 4 and provide for the Shareholders Rights Plan to remain in force until the Board of Directors has concluded its strategic review.

The Board of Directors adopted the conclusions of the Independent Committee and determined that it would not make a recommendation to Shareholders whether to accept or reject the Unsolicited Offer.

The following is a summary of the principal reasons why the Independent Committee and the Board of Directors have decided to make NO RECOMMENDATION with respect to acceptance or rejection of the Unsolicited Offer:

  • The Board of Directors believes that the price to be received by Shareholders in a change of control transaction should adequately reflect the quality, stature, scarcity value and strategic importance of Thirdcoast and its businesses and the unique opportunity it would offer an acquiror. The Offeror estimates that the Goderich Terminal alone has a replacement cost of approximately $50-$60 million which is greater than the purchase price for the entire Company under the Unsolicited Offer. This is before accounting for Thirdcoast's other assets which add up to significantly more than half of the consideration under the Unsolicited Offer. Thirdcoast's other assets include G.S. Dunn, a market leader in mustard milling and the production of dry mustard products which are distributed to over 50 countries across 6 continents; the Port Colborne grain-handling facility which is profitable and has been improved in recent years through capital expenditures focused on automation; and a significant amount of cash and other liquid securities. In addition, the Offeror acknowledges that material synergies will accrue to it as a result of obtaining control of the Goderich Terminal.
  • The Independent Committee is working on an alternative asset transaction involving the sale of its grain business which would result in a Superior Transaction. There is no guarantee that a Superior Transaction will be entered into, but if it were, it is expected that the net proceeds of such Superior Transaction (after all taxes and transaction costs) combined with Thirdcoast's cash and liquid investment balance would be in excess of $155 per share, and result in cash being paid out to Shareholders in the form of a dividend. In addition, Shareholders will continue to own G.S. Dunn, which generated an average of $2.9 million of EBITDA per year over the past five years.
  • The Unsolicited Offer is not a Permitted Bid under Thirdcoast's Shareholder Rights Plan and is inherently coercive. Thirdcoast has a Shareholder Rights Plan which is intended to prevent third parties from making an unsolicited take-over bid unless they have the support of the Board of Directors or they make a "Permitted Bid". To be a Permitted Bid, a take-over bid must, among other things, be open for at least 60 days and be accepted by the holders of more than 50% of the Common Shares (other than those Common Shares held by any Shareholder or group of Shareholders making a take-over bid). To the extent that more than 50% of Thirdcoast's independent Shareholders tender to a Permitted Bid, the bidder is required to announce this fact and extend the bid for a minimum of 10 business days. Among other things, a Permitted Bid provides your Board of Directors with additional time for the pursuit of alternatives that could enhance value for the Shareholders. A Permitted Bid also makes it more likely that holders of Common Shares have sufficient time to consider all appropriate alternatives and do not feel compelled to accept an offer for fear that other Shareholders would tender and they would remain as minority shareholders in a corporation with a new controlling shareholder, with significantly less liquidity and the absence of any takeover premium. The Offeror explicitly chose not to make a Permitted Bid. The Unsolicited Offer is open for acceptance for only 35 days and the Company requires a longer period of time to attract competing proposals from prospective buyers than that which is currently provided for in the Unsolicited Offer.
  • The Unsolicited Offer is also structured such that the Offeror may acquire a sufficient number of Common Shares to gain effective control of the Company, without any requirement or obligation to acquire the balance of the outstanding Common Shares. This is inherently coercive because it forces Shareholders to decide whether to accept the Unsolicited Offer, sell into the market or reject the Unsolicited Offer and maintain your position without knowing whether and to what extent other Shareholders might accept the Unsolicited Offer. Accordingly, a Shareholder may feel compelled to tender Common Shares to the Unsolicited Offer, even if the Shareholder considers the offer price under the Unsolicited Offer to be inadequate, out of concern that if, in failing to do so, the Offeror acquires less than 100% of the Company, the Shareholder may be left holding a minority investment at a reduced price reflective of a minority discount and with significantly less liquidity. The Offeror has suggested both in its Offer and Circular and in an affidavit provided to the OSC that it intends to proceed by way of a compulsory acquisition or subsequent acquisition transaction to acquire the rest of the Common Shares it does not acquire under the Unsolicited Offer, but it has not structured the Unsolicited Offer to provide this assurance to Shareholders.
  • There are other significant risks and uncertainties related to the Unsolicited Offer, which are described in further detail below. See "Risks Related to the Unsolicited Offer".
  • At present, the Unsolicited Offer is the only offer for the Common Shares that is available for acceptance by the Shareholders. Although a superior proposal that would deliver greater consideration per Common Share than the Unsolicited Offer may emerge before the expiry of the Unsolicited Offer, no such offer is currently available to the Board of Directors.

Risks Related to the Unsolicited Offer

The Unsolicited Offer is subject to a number of risks and uncertainties, including but not limited to the following:

  • The Unsolicited Offer is highly conditional, to the benefit of the Offeror.
  • Under the Unsolicited Offer, the Offeror may gain effective control of the Company without any obligation to acquire the outstanding Common Shares that were not tendered to its bid. This is inherently coercive because a Shareholder may feel compelled to tender Common Shares to the Unsolicited Offer, even if the Shareholder considers the offer price to be inadequate, to avoid the risk that the Shareholder may be left holding a minority investment at a reduced price reflective of a minority discount and with significantly less liquidity.

The foregoing is only a summary of the information and factors considered by the Independent Committee and the Board of Directors. This summary is not intended to be exhaustive. Shareholders should read the entire Circular, which includes further details of the material information, factors and analysis considered by the Independent Committee and the Board of Directors.

About Thirdcoast Limited

Thirdcoast (formerly Goderich Elevators Limited) is a holding company for operations involved in the handling and processing of food grains and food ingredients shipped around the globe. The goal of the Company is to maximize customer and shareholder value through world class practices and continually strive for the highest levels of quality and customer care in the services and products it provides. Thirdcoast's operations are primarily carried out through its two main wholly-owned operating subsidiaries: Southpier Terminals and G.S. Dunn.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of applicable securities laws. These statements include, but are not limited to, Thirdcoast's future outlook, business strategy, plans, expectations, results or actions, or the assumptions underlying any of the foregoing. Forward-looking statements can generally be identified by words such as "may", "should", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "outlook" and similar expressions. These statements are based on information currently available to Management and on the current assumptions, intentions, plans, expectations and estimates of Management regarding Thirdcoast's future growth, results of operations, performance, business prospects and opportunities and ability to attract and retain customers as well as the economic environment in which it operates. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which could cause actual results of Thirdcoast to differ materially from the conclusion, forecast or projection stated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: future actions by P&H in connection with its Insider Bid; the strategic alternatives being explored by the Company; and, other factors referenced in Thirdcoast's MD&A for the year ended March 31, 2011 and Thirdcoast's other continuous disclosure filings which are available on SEDAR at www.sedar.com. Readers should not place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this press release, and, except as required by applicable securities laws, Thirdcoast assumes no obligation to update or revise them to reflect new events or circumstances.

Contact Information

  • Thirdcoast Limited
    Don Henry
    President
    519-524-7367