Dome Petroleum shareholders may reject Canadian bailout plan
A shareholders' revolt, prompted by the controversial bailout last month of Dome Petroleum Ltd., Canada's largest oil company, now looks like a distinct possibility to analysts and observers here.Skip to next paragraph
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The market has signaled its rejection of the more than $1.23 billion (US) rescue, reached behind closed doors during a week of negotiations in Toronto. The ''Dome Pete'' stock that went off the board, pending the bailout announcement at $5.13 (Can.), reopened at $3 (Can.) three weeks ago and has stayed in that area.
Dr. John Duby, who two years ago wrestled control of United Canso Oil & Gas Ltd. away from Canada's powerful Buckley family, is leading a group of stockholders named ''Dome Shareholders' Committee for a Fair Deal.'' They are said to be preparing to challenge the deal with four Canadian banks and the federal government, because it will result in a massive dilution of their shares.
Canadians hold only about 37 percent of the stock. Thus American, European, and Japanese shareholders will likely be contacted to enlist in a proxy fight before a shareholders' meeting here tentatively scheduled for next January.
According to Dr. Duby, the $2.50 (Can.) conversion rate offered by the government and the banks on new debentures ''is intolerable.''
The deal involves the banks, the government, and, it was hoped, private shareholders, taking debentures that can be converted into shares in about 10 years at that $2.50 price.
As recently as last summer the prestigious financial house of Wood Gundy set the value of the stock at $13 (Can.). Dome Pete chairman Jack Gallagher himself told shareholders at the last annual meeting that, based on the company's assets and prospects like the Beaufort Sea oil find, they were clutching a $30 share.
Slightly more than a year ago Dome Pete traded at $25, after several splits in the past five years made it one of the most sought-after and admired securities at home and abroad.
If the Canadian government; the banks of Toronto Dominion, Canadian Imperial, Royal, and Montreal; as well as the existing shareholders, all converted their debentures into stock, there would be 1 billion shares outstanding.
That compares to 250 million shares out now plus a relatively small amount of outstanding preferred warrants yet to be converted into shares. The dilution of shareholders' equity proposed ''is unacceptable,'' says Dr. Duby.
Ian Doig of Merrill Lynch Royal Securities saw the proposal as ''back door nationalization'' of Dome ''in both assets and indebtness'' by Ottawa. He suggested that perhaps the company was worse off than he at first thought.
Dome Pete stock-holding patterns may work in the favor of Dr. Duby and his shareholder allies, who include some high-powered financial and legal wizards.
First, the stock is fairly widely held outside Canada; at home the shares tend to be in a few sizable concentrations. Mr. Gallagher, the company's founder , is the single largest private shareholder, with about 5.4 million shares. Together with management's portfolio, the in-house holdings come to about 5 percent for the executive suite and about 11 percent for the Dome employees' pension fund, both usually voted by management as a block.
Dome Mines Ltd., in an interlocking arrangement with Dome Pete, is the company's largest corporate shareholder, with 27 percent of the outstanding shares. Like other institutional investors, it is going to suffer through stock dilution. So Dome Mines management may not follow its usual habit of siding with Dome Pete management in voting, experts say.
No local analyst had expected the convertible debentures chosen as the rescue vehicle by the government and the banks to be offered at less than $7.50 a share.
The sliding-scale conversion - which makes provisions for actual conversion rates at $5 over an 18 month-period if the situation improves - is still too low , critics say.
In any case, the higher price is contingent on a rising stock value - which is unlikely to materialize under the clouds of uncertainty hanging over Dome Pete.
Critics also doubt that existing shareholders, who already suffered huge losses as the stock value slid so precipitously, are likely to rush out to grab the $500 million debentures set aside for them.
In that event, the debenture issues from the government and the banks would fall short of the cash infusion thought needed to keep Dome Pete afloat.