Dioro Exploration has capitulated to Avoca Resources' hostile $68 million takeover after the fellow gold miner increased its bid and a rival deal with a Canadian miner fell through.
Dioro today advised shareholders to accept Avoca's sweetened scrip offer of one Avoca share for every 2.3 Dioro shares.
The offer values the target at 74.6 cents per share or about $68.3 million, based on the closing price of Avoca shares on Tuesday of $1.715.
The previous bid was one Avoca share for every 2.4 Dioro shares held, itself an improvement on an initial offer of one Avoca share for every 2.82 Dioro shares held.
"The directors of Dioro unanimously recommended that, in the absence of a superior offer, Dioro shareholders accept Avoca's revised offer," Dioro said in a statement on Wednesday.
The company also said its directors intended to accept the offer in respect of their personal shareholdings.
Dioro had rejected Avoca's previous offers, saying they undervalued its assets.
Dioro revealed last week that it was in talks with Canadian gold and copper miner Northgate Minerals Corporation regarding the sale of Dioro's 49 per cent stake in the Frog's Leg mine in Western Australia.
Northgate said yesterday that it had ended its discussions with Dioro.
Avoca, which operates mines neighbouring Dioro's, has lifted its stake in the target to 21.16 per cent, from 20.23 per cent.
Avoca managing director Rohan Williams said the Dioro board recommendation had increased the likelihood of the bid succeeding.
"I think Northgate pulling out was a material event and shortly after that, we got agreement," Mr Williams told a teleconference today..
"The major shareholders have obviously not actioned into accepting the bid, but now there is a recommendation by the Dioro board it may present a different view to them."
If the offer succeeds, Avoca would spend several months reviewing Dioro's assets, including the South Kal operations where two major pit-wall failures occurred in September and February, Mr Williams said.
He said Avoca would offer "security of employment for many operators and personnel in the company" but stopped short of saying Dioro's board would be welcomed.
Analysts have questioned Dioro's geotechnical expertise and quality of management in light of the South Kal problems and plan to sell Frog's Leg, its flagship asset.
"In the event that Avoca is ultimately successful in their attempt to takeover Dioro, shareholders will retain the upside offered by Frog's Leg and Dioro's exploration potential but with the benefit of vastly superior management," broker Fat Prophets said in a report.
The unconditional bid closes on August 4.
Mr Williams has also not ruled out further acquisitions.
"I believe the current market and operating conditions represent a once in a decade opportunity for consolidation among the mid-tier gold mining sector," he said.
"Once the Dioro acquisition is bedded down, Avoca will be in a lead position to become Australia's pre-eminent mid-tier gold producer and there is significant room in the Australian gold landscape to achieve this goal."
Shares in Dioro were steady at 71 cents after emerging from a trading halt today. Avoca's shares were seven cents weaker at $1.645.
Full announcement below:
Dioro Directors unanimously recommend shareholders ACCEPT increased Avoca offer of 1 Avoca share for every 2.3 Dioro shares held.
Avoca Resources Limited (Avoca) (ASX:AVO) and Dioro Exploration NL (Dioro) (ASX/TSX:DIO) wishes to announce that the directors of Dioro have agreed to recommend Avoca's unconditional takeover offer (Offer) after Avoca agreed to increase its consideration to 1 Avoca share for every 2.3 Dioro shares held.
The increase will apply to all Dioro shareholders who accept the Offer, including those who accepted prior to the increase.
The directors of Dioro unanimously recommend that, in the absence of a superior offer, Dioro shareholders ACCEPT Avoca's revised Offer. Those directors of Dioro who control shares in Dioro presently intend to accept Avoca's increased Offer in respect of the Dioro shares they control, in the absence of a superior offer for Dioro shares.
Following receipt of Avoca's Fourth Supplementary Bidder's Statement, Dioro will release a Sixth Supplementary Target's Statement setting out the reasons for the directors' recommendation, which Dioro shareholders should read in full.
Avoca Chairman, Mr Robert Reynolds, said "We are pleased that the Dioro Board has decided to support our further increased Offer, which will allow Dioro shareholders to retain an interest in Dioro's 49% owned Frog's Leg gold mine, while becoming a shareholder of a mid-tier Australian gold producer of scale and with significant growth
Avoca's increased Offer presently values each Dioro Share at 74.6 cents per share1 and represents a premium of approximately 89% to the 39.5 cent closing price of Dioro Shares on 9 April 2009 (the trading day prior to the announcement of the Offer)1.
Avoca's previously announced acceleration of payment terms will continue to apply, meaning that Dioro shareholders who accept the Offer (at the increased Offer consideration) will be issued with Avoca shares within 10 Business Days of receipt of a valid acceptance or their acceptance instructions being implemented.
Avoca will shortly release a formal Notice of Variation increasing the Offer consideration, a Notice of Automatic Extension (in relation to the Offer period) and its Fourth Supplementary Bidder's Statement. As mentioned above, Dioro will thereafter release its Sixth Supplementary Target's Statement with further information for Dioro shareholders.
Dioro shareholders are encouraged to read all information sent to them.