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Canada Carbon: A Bump In The Night

Mar. 10, 2020 1:20 AM ET|About: Canada Carbon Inc. (BRUZF)
Summary

Did someone take a take over run at Canada Carbon last week?

Shareholder Rights Plan Vested in One Day.

Down $0.01 on good volume on Black Monday.

Canada Carbon (V.CCB) (OTC:BRUZF) had a Hell of a week last week. From $0.24 to $0.37 on over 9.5 million shares traded on Canadian exchanges. And today, as the entire Canadian junior market joined senior markets in a suicide dive to liquidity, Canada Carbon lost a single penny on 2 million shares traded.

Good news for Canada Carbon’s shareholders but, unlike the previous two runs, first on the news of the settlement of the Grenville sur la Rouge litigationand second, on the announcement of the LGC Group agreement to develop a nuclear graphite Certified Reference Material, today’s buying volume did not have an obvious news trigger.

Or did it?

CCB did put out news today. But, at first glance, it was a pretty routine update of the company’s “Shareholders Rights Plan” which had been ratified by the shareholders back in 2014. Nothing to see here. Executive Chairman and CEO R. Bruce Duncan remarked, “The Plan is intended to discourage coercive or unfair take-over bids and to provide the Board with additional options to defend against any unsolicited take-over bid, and to explore and develop, if appropriate, alternatives that enhance Shareholder value and to give Shareholders adequate time to consider any such transaction.”

But, and this caught my interest, while the plan is to be ratified at the next Shareholders Meeting on a date to be determined, the company issued a “Right” to attach to each currently issued share as of close of business March 9th. Today. The “Right” gives the shareholder the ability to purchase an additional share in the company at a price to be set in future. However, if an Acquiring Person fails to comply with the rules set out in the Shareholders’ Rights Plan, it will not be allowed to exercise that right on the shares it holds.

As Canada Carbon acknowledges in this release, this is very similar to the sort of “Poison Pill” provisions other Canadian junior companies create to protect shareholder value from low ball, hostile, takeovers.

It is not the sort of thing you bang together in a weekend and announce before market on a Monday. It requires a bit of lawyering, a Directors’ Meeting and clearance of the press release by the regulator. You don’t do it on a whim.

You do it because you think there might be a stealth bid forming for your company’s shares.

Most junior mining CEOs, after their stock price has tripled, would have taken the weekend off and had one or several congratulatory beverages with their grateful Board of Directors. But Bruce Duncan is not a geo or accountant or even a lawyer: he is a financial adviser who has spent much of his life advising on mergers and acquisitions, both friendly and hostile.

Did he see something in the trading of nearly 9 million shares on Thursday and Friday? (Not including the US market.) Something which suggested that an unfriendly party was buying? Something he might have done to set up a hostile takeover? An accumulation?

Fully diluted Canada Carbon had 118 million shares out as of June 2018. Which means that the Thursday/Friday volume was just a hair under 8% of the outstanding shares. Exciting, but also a bit suspicious.

Was there a bid being prepared? A position being assembled? I have no idea, but creating a Shareholder Rights Plan that vests in the course of a single daystrongly suggests Duncan and his Board were concerned.

In the press release the company states, “The Plan is not intended to prevent take-over bids. Pursuant to the terms of the Plan, any bid that meets certain criteria intended to protect the interests of all Shareholders will be deemed to be a “Permitted Bid” and will not trigger the Plan.”

In baseball, a pitcher will sometimes deliberately throw a pitch very close to a batter. It’s called a brushback pitch, a fastball thrown high and inside the strike zone and, while intimidating, it’s perfectly legal. A fast-tracked Shareholders Rights Plan vesting on the day it is announced is the corporate equivalent of a brushback pitch.

It may all turn out to be nothing, but Duncan is the sort of CEO who investigates rather than assuming. Because Duncan has played the M&A game. He knows how he would go about taking over an undervalued junior with huge potential and, perhaps, he recognized the opening moves he would have made. He also knows what action would stop a hostile takeover dead in its tracks.

Doubling the number of shares to be purchased in certain circumstance puts paid to a stealth bid.

Something went bump in the night, Duncan and Canada Carbon have likely scared it off. Although the 2 million shares traded today may indicate that, whatever it is, is still out in the tall grass waiting.

Either way, Canada Carbon shareholders are, perhaps, the only happy people on Bay Street this Black Monday.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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