Was it bad judgment, or simply good fortune?
Senior executives at Dofasco Inc. were given more than 450,000 stock options just two days after Arcelor SA and Nucor Corp. approached the company with a sweetened takeover offer, documents show.
The options — granted on June 23 at a price of $37.75 — are now worth $12-million. About $5.2-million of that belongs to chief executive officer Don Pether, who was directly involved in the takeover discussions.
In fact, just 10 days before the options grant, Mr. Pether had a meeting with ThyssenKrupp AG officials during which the German company's executive chairman said it might be willing to act as a white knight if Dofasco found itself fighting a hostile takeover battle.
Dofasco was officially put into play on Nov. 23 when Luxembourg-based Arcelor made an unsolicited bid of $56 a share. Five days later, Canada's largest steelmaker unveiled a friendly offer from ThyssenKrupp for $61.50 a share.
The Hamilton company says it got a legal opinion from Fasken Martineau DuMoulin LLP that it could give the options because it had dismissed the advances of Arcelor and Nucor on June 22 and had no formal bid to consider on June 23.
“It wasn't as if we were imminently going to be signing a deal,” said Dofasco spokesman Gord Forstner. “We had been given some exploratory numbers and none of them looked like they were enough to engage our board.” Dofasco had traditionally granted options around that time in June, said Mr. Forstner, and to refrain from doing so “would have provoked a whole lot of speculation.”
“We were at a point in our discussions where things subsided. It went quiet. Those sorts of discussions, exploratory discussions, often go nowhere, and in our industry, it's been an ongoing phenomenon for the last three or four years,” said Mr. Forstner.
But the company's reasons are falling flat with Dofasco shareholders, some of whom already question whether the board did enough to find other bidders before it agreed to be acquired by ThyssenKrupp.
“It's completely offside,” said one institutional investor of the options grant. “In hindsight, it will come back as being quite fishy.”
Arcelor and Nucor approached Dofasco in late May and offered $43 a share. When they came back on June 21, they offered $46 a share in cash, plus a security that would have allowed Dofasco shareholders to keep an economic interest in the profits from the sale of subsidiary Quebec Cartier Mining Co. (QCM).
Another Dofasco shareholder, speaking on condition of anonymity, estimated the value of the QCM stake would have been about $10 per Dofasco share, making the June bid worth about $56 a share.
It was rejected the next day by a special committee of Dofasco's board, but the company didn't disclose the offer, nor the existence of the special committee.
“That, to me, seems pretty dicey,” said Bill Mackenzie, president of Institutional Shareholder Services Canada Corp. “If you've got somebody who's got a solid offer at that price, it would be a difficult decision for a board to decide to grant the options.”
In total, 456,600 options went to ten senior executives. Eighty-two others in the company also received options.
Other than Mr. Pether, the chief beneficiaries were chief operating officer Allen Root and vice-president of finance Walter Bilenki. At Thursday's closing price of $64.31, their new options are worth $2.2-million and $1.2-million, respectively.
© The Globe and Mail
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