Silver Wheaton gets sufficient votes for its offer for Silverstone: vindication for nobody.
1) Why did Silverstone sell itself to Silver Wheaton, and why now?
1. Great difficulty competing with SLW
2. Fear of a repeat meltdown and lower base metal prices
3. Growing potential conflict of interest issues; Darren Pylot would have to resign as one result, and then would not be able to run Silverstone
4. Perpetually lower valuation while the company remains on its own
5. Less access to capital, not on Toronto Main board.
SST could have lived perpetually on its excellent cash flow, moved onto the main board, and used a share buyback as the primary method to raise its value in the likely absence or near-absence of new silver stream deals with unaffiliated companies. (Of course, it also would go up with higher silver prices.) Its cash balances might grow to enormous proportions without any new silver streams, making it even more of a takeover target than it already is if it couldn't find some better way to spend its cash. In a few years it would get even more revenue and growth from a silver stream with Aquiline, and likely during this time have an opportunity to do another new deal with Capstone if that was not also judged to be a conflict of interest. But it would be operating in a stunted way, like a bonsai, with all those above-listed risks and problems. Silverstone president Darren Pylot is a conservative guy and didn't want those risks and problems, and he didn't want to be operating a "bonsai company". It all makes sense.
2) Was the offer "fair"?
Unfortunately, in the real world, "fair" is whatever a buyer is willing to pay. I know of a house that was worth $750,000 three years ago that is now surrounded by houses with asking prices of $475,000 today. If I offer $400,000, is that "fair"? If the owner is motivated enough, and accepts the offer, then the offer was fair enough to him. Silver Wheaton knew that there was little risk of competitive bids, so it offered terms which were on the absolute low end of the scale. At the high end of the scale the offer would be interpreted as fully valued. Instead, they offered terms which according to a significant minority of shareholders were barely reasonable or minimally acceptable. Others felt the terms were unreasonable and even highway robbery, and analyst John Doody said that Silver Wheaton was "basically stealing Silverstone". Silver Wheaton could not be compelled to pay more because they didn't have to, especially because there were no other bidders. I doubt that anybody anywhere - including Silverstone management and each shareholder who voted "yes" - believes the terms that Silverstone received fully valued the company.
3. Getting almost 75% of the "yes" votes is vindication for nobody
This plan of arrangement only got 8% more than the bare minimum necessary to be approved. Tens of millions of shares were represented by those voting "no". For sake of discussion, had Silverstone and Capstone not tendered their shares, the offer from Silver Wheaton definitely would not have received the required percentage of "yes" votes. This "yes" vote therefore is vindication for nobody. Does getting nearly 75% "yes" votes show loyalty of shareholders to Silverstone management? One would think so. But in one of the supreme ironies, much of the fiercest loyalty came from those who voted against the deal. Retail shareholders especially were against the deal. In effect, they believed more in Silverstone's value, and in Silverstone's ability to remain a successful stand-alone company with Darren Pylot at the helm, than Pylot did.
4. Where to go from here?
Silver Wheaton is a fast growing powerhouse of a company. If their stock price reaches its high point of 2008, the value of Silverstone stock (soon, Wheaton stock) will achieve an equivalent of the all-time high ($3.60) that Silverstone achieved in March, 2008. That's why this deal will work out well for Silverstone shareholders to the extent that they keep their Wheaton stock. All this compared to the $1.00 Silverstone stock price in effect two days before the takeover was announced in March. Silver Wheaton will grow, the price of silver will go up, and with it the price of Wheaton stock. It's better than a kick in the face.
However, shareholders may also want to follow Darren Pylot to where he focuses his energies next. Let us look at the long term track record of this management group. Capstone stock is 8 times more valuable than it was 5 years ago. The more long term Capstone shareholders were gifted 1 share of Silverstone for every 3 shares of Capstone. Those free shares of Silverstone greatly increased the overall return on investment. Silverstone got slammed by the late 2008 market collapse and shares were trading at below 40 cents. Now they are trading at nearly $2.00. All this despite a punishing investment environment that has permanently ruined the stock prices of the majority of companies in the resource industry. Despite wishing that Silverstone had continued to exist and then proceeded to fulfill its potential, or was bought out by Wheaton at better terms, I now prefer to look forward to management's next deals which they may make even more successful than they achieved with Silverstone.
This Silverstone forum on Stockhouse will probably terminate in 24 hours as Silverstone stops trading after May 20. I am putting together a casual email or discussion list for investors interested in keeping up with or discussing managements' next deals. Please go to https://groups.yahoo.com/group/MANAGEMENTS_NEXT_DEALS and sign up.
Thanks everyone. What a long strange trip it's been on the SST Express.