MarlboroD

Excellent summary and discussion of the salient points. Let me offer some comments and perhaps poke some holes in the "exceptions" below.

(a) There is no doubt that a TO from CLF (even without director representation) would be considered as an insider bid...hence valuation of KWG would be required, so it has to be north (way north) of some $0.30/s since KWG value has advanced significantly after the 2 valuations: the RR and BH. In a similar situation, insiders (CLF and Management) were not allowed to vote on one resolution involving the super-shares, but on the other, CLF was allowed to vote it's shares (111.8M) and was able to block the vote to achieve the 2/3 level (not enough voter turnout, hence CLF 118.M was equivalent to a lot more than 16.7%). Lesson learned: Go to the poll/computer/phone and cast your votes.

(b) Exception 1: You have considered this as non-relevant...I would add that I don't quite understand what this really means, can someone give an example?

(c) Exception 2: Presumably KWG "poison pill" (if not, have one available pronto) would contain the provision of a "permitted bid", i.e. if the BoD does not allow a low-ball bid to go though then KWG would not be considered as "in play" so that CLF could ride on this coattail.

In addition, is there any minimum requirements for a bid to prevent a low-ball bid from a "nobody". Presumably, the BoD will need to have a cursory at a bid to assess if the bid is "legitimate" and is worthy for the BoD to spend the time to consider it. For example, if someone comes in with a bid of $0.01/s, can the BoD just throw it in the trash can?

(d) Exception 3: May be CLF, on the advice of its lawyers, thought that no valuation would be required if they have no board representation...But, can a hostile bid get around the poison pill provisions such as "permitted bid' and other defence mechanisms? In addition, KWG can always trigger a revised valuation to reflect the current assets.

(e) The last bit of the quote below is quite intersting. This is the stuff about CLF would not be permiited to vote its 16.6% OS (or 11.4% FD including the 80M shares from the last PP), since it was obtained during the period when they were chasing after both SPQ and KWG. With the support from KSU and some other friendly blocks, management (KSU +Man=15.8% w/o any contribution fron the sahre from the PP) should be able to block CLF from obtaining 2/3 (without counting the previously acquired shares, the 11.4% FD.

(f) The piece CLF wants badly is the "surface rights/esker" held by KWG via CCC. This gets more and more valuable everyday. Since CCC is a 100% subsidiary of KWG, CLF cannot cherry pick this, it will have to go through KWG to get this piece. Even though it has enough chromite, it will have to pay for BH and the 30% BD as well.

(g) "National security"? This perhaps could be argued either way (the US may consider chromite as "strategic stuff", so can Canada). But, I would say that "national interest" would relevant in this case and would be sufficient to block a bid from a foreign entities. In orther words, if our PM say no, from the consideration of "national interest", then the bid would not be successful.

(h) Politics aside, it's always good to have a guarding angel (white knight). Or, it would be more fun to have a bidding war.

goldhunter

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Your post says

"THIS IS IMPORTANT:
- A take-over bid launched by a large shareholder (10 percent or greater, ie. Cliffs) will be considered to be an "insider bid" and the consideration offered in the bid must be supported by an independent valuation UNLESS AN EXCEPTION APPLIES.

Here's where it gets tricky. Three possible exemptions:
1. Where the value of the consideration being offered is accepted and agreed to by certain other large arm's-length shareholders; [I see this as non-relevant]
2. Where the target is the subject fo an active auction, ie. another takeover bid or sale transaction is ongoing; [I see this as a risk ... a third party could put in a bid for KWG at say 10 cents and put it into play, at which point Cliffs could theoretically put in a higher bid at say 15 cents that appears NOT to trigger a third-party valuation]
3. Where the large shareholder has had no management representation or representative directors on the target's board in the last twelve months; [Again, this indicates to me that Cliffs might not need adhere to an independent third-party valuation if they launch a hostile bid].

There is some useful information within the document about how a foreign corporation can structure a Canadian shell to effect the takeover, and how different approaches can affect tax issues. In particular, there can be a risk under certain circumstances of a share swap that a capital gain/loss can be triggered at the time of the exchange, even if the shareholders who were given the new shares don't disburse.

There is quite a bit of info about the 2/3rd and 90% lines that shareholders who were in SPQ a few years ago will remember without much pleasure. I won't go into detail on those now. This is called the "squeeze out."

HOWEVER, I discovered something very interesting which may relate to the fact that Cliffs failed to pursue KWG when they were chasing KWG and SPQ. "Any securities acquired prior to the launch of a take-over bid (i) may not be counted towards the 90 percent threshold; and (ii) may not be voted by the acquirer in favour of a second-step going-private transaction that may be proposed to squeeze out minority shareholders in the even that less than 90 percent of the equity shares are tendered to a bid."

WHOA! Does this mean that Cliffs' current approx 17% toehold cannot be used in the 90% rule? Nor can it be voted if two thirds is achieved? If that's the case, then perhaps Cliffs realized that there was a significant change that they would not have been able to ever force a squeeze-out to take 100% control of KWG, because they already had the toehold at the time of the offer! I am sitting here right now wondering if that played significantly into the decision to pursue only SPQ.

There is a fair amount of information about the Investment Canada Act, which the government can use (through Industry Canada) to prohibit a takeover. Prior to 2010, there was only one case ever where a foreign company was denied permission to continue a takeover bid. It appears that Cliffs probably would not find this to be a significant stumbling block, as the chromite of the Ring Of Fire arguably does not relate directly to "national security."

There is discussion about an asset sale versus a corporate takeover. An asset sale would be deemed as equivalent to a takeover if the asset represented a significant amount or the entire amount of the target's total asset. That's probably not relevant in this situation. KWG now has two or more significant assets, so the disbursement of one would probably not be considered similar to a takeover by a non-Canadian entity that would interest Industry Canada.

All in all, some very interesting information."