By: Tomas Ronolski - AllPennyStocks.com News

Wednesday, September 18, 2013

Who doesn’t love a good takeover battle? Well, maybe the shareholders of Denison Mines Corp., as shares have been sliding since Tuesday’s announcement that they intend to counter the offer of Mega Uranium Ltd to acquire Rockgate Capital Corp. It doesn’t look like the markets are quite buying that a deal is set in stone either, with shares of Rockgate still more than ten percent away from the price that Denison was putting on the table. Rewinding to June, Mega Uranium (TSX:MGA) and Rockgate (TSX:RGT) announced that they had penned a binding letter of intent to merge their companies into one diversified miner. Mega Uranium has uranium projects in Australia, Canada (the world’s largest uranium producer) and Cameroon, as well as base and precious metal properties in Canada and Brazil. Rockgate, a base and precious metal miner, controls four projects in Africa, including its Falea uranium and silver project.

Under the terms of the Mega/Rockgate agreement, Rockgate shareholders were to get 2.2 Mega shares for each Rockgate share held. Based on prices at that time, the implied value was 25 cents per Rockgate share, which represented a 36-percent premium to Rockgates 20-day VWAP (volume weighted moving average). In August the LOI was upgraded to a definitive agreement to merge the companies. At that point, shares of Rockgate had slumped all the way down to around 15 cents each. Shareholders also didn’t seem to be keen on the idea that Mega was intending to affect a reverse split upon the merger, making the exchange ratio effectively 2.2 shares of Mega for each 10 Rockgate shares. Mega shares were at 10 cents at that time, putting the deal at about 22 cents per each Rockgate share. Today, Mega shares are at 8 cents.

The definitive agreement has a $1-million break fee. Mega and Rockgate shareholders were expected to vote on the deal next Wednesday.

Enter Denison Mines (TSX:DML) (AMEX:DNN), a much larger company ($494.9 million market cap) than Mega Uranium ($21.4 million market cap). Denison said that it intends to make a takeover bid for Rockgate in exchange for its shares, saying it intends to offer 0.192 shares of Denison for each Rockgate share. Based on prices at the time, this implies a value of 23 cents per share for Rockgate and a total purchase price of $26.7 million and represents a 47 percent premium over Rockgate’s closing price on Monday. It’s also 38-percent higher that Mega offered based on Monday’s closing price and exchange ratios.

According to Denison president and CEO Ron Hochstein, after Mega made the offer, Denison was contacted by some of the largest shareholders in Rockgate “who were unhappy with the Mega Transaction.” Hochstein said that Denison has had its eye on the Falea property as a nice complement to Denison’s African uranium projects. Denison intends to one day spin-out their African assets into a new company.

Denison also disclosed that it has spoken with shareholders controlling 31.5 percent of Rockgate shares, who say that they are going to vote against the Mega Uranium offer. Sprott U.S. Holdings, who owns 11.2-percent of Mega Uranium has also said they will vote against the Mega Uranium deal, equating to almost 43 percent of Rockgate shareholders ready to vote the deal down.

It’s hard to imagine that Rockgate shareholders would take the Mega offer with Denison’s sitting there next to it. Not only is it a premium price, but also the synergies are better and the sheer size of Denison compared to Mega will likely open more opportunities for shareholders. But, like this article opened, shareholders of Denison don’t seem to be jumping up and down for joy over the possible acquisition at this point. Toronto-listed shares on Denison fell about 6 percent on Tuesday and are flat on Wednesday.

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