Allana Potash fka AAA

[FlatEarthSoc]

not sure the FP article was posted here so here it is....

Allana Potash held talks with Chinese construction giant before ICL deal

http://business.financialpost.com/news/mining/allana-potash-held-talks-with-chinese-construction-giant-before-icl-deal

TORONTO — China’s largest construction company was in talks to buy a controlling stake in Allana Potash Corp. that was worth more than the takeover bid the junior miner eventually accepted.

The Financial Post received a copy of a memorandum of understanding (MOU) between Allana and state-owned China Communications Construction Company Ltd. (CCCC). The document, dated March 4, contemplated a deal in which CCCC would acquire a 51 per cent interest in Toronto-based Allana for $156 million. CCCC would then take charge of financing and construction responsibilities on Allana’s US$700 million Danakhil potash project in Ethiopia.

Ultimately, the two sides did not move beyond this framework agreement to reach a firm deal. On March 26, Allana agreed to a takeover offer from Israel Chemicals Ltd. (ICL) worth $137 million.

Sources close to Allana said the firm tried to negotiate a binding agreement, but the Chinese company dragged its feet. Chinese firms are known to be careful and deliberate negotiators, and they frequently sign MOUs that don’t result in firm deals.

Allana chief executive Farhad Abasov said there were numerous problems with the MOU that made it a non-starter. It was full of conditions that needed to be met, and if they weren’t, Allana could lose control of the company without getting all the funding needed for the Danakhil project.

“This was the second non-binding MOU with the same group,” he said. “It was not a definitive agreement. It had certain conditions which were very difficult, if not impossible, to meet. And it would have led to dramatic dilution.”

One of the problematic conditions in the MOU is that CCCC wanted Allana’s three strategic investors (ICL, International Financial Corp. and Liberty Metals and Mining Holdings) to avoid exercising their anti-dilution rights. The Chinese firm also wanted offtake rights for the output from Danakhil that currently belong to ICL.

Allana felt the clock was ticking because the firm offer from ICL could disappear or get reduced. It decided to jump on the friendly offer, which was valued at 50 cents a share.

A source close to CCCC disputed Allana’s version of events, saying CCCC’s board approved the MOU and was very keen on this deal. The source threatened to launch an oppression lawsuit against Allana as well as lawsuits against company insiders.

Of course, if CCCC is really keen on Allana, there is nothing stopping it from making a rival offer for the company. The break fee in Allana’s deal with ICL is just $5.5 million — not a large amount for a Chinese multinational.

The Allana-ICL deal has been a hot topic on Internet message boards, with retail investors complaining about the price. But Allana shares closed Friday at 48.5 cents, close to ICL’s offer price. That shows investors thinks the deal is likely to be approved, and do not expect a rival bid.

ICL already owns 16.4 per cent of Allana shares, which gives it an advantage over other potential bidders. Buying the Danakhil project would allow the company to diversify its asset base outside of its core potash business in Israel.

From Allana’s perspective, the offer of 50 cents a share is far below its highs of more than $2 in 2011. But Abasov said previously his firm was in a difficult position, because it could not come up with a way to finance the Danakhil project without heavily diluting shareholders in the current rough market conditions.

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