What happened?

     Shares in Canada's largest diamond miner, Dominion, rocketed after a $1.1bn cash bid for the company by WashCorp, a collection of private firms owned by an American billionaire, Dennis Washington.
     WashCorp privately asked for 45-days for exclusive talks, plus a veto on Dominion's next chief executive. Dominion says it is “open” to talks, but refused WashCorp's terms, so Washington turned hostile, offering $13.50 per share, 50 per cent higher than Dominion's share price a week ago.
     Dominion, which owns the Ekati mine in northern Canada and 40 per cent of Rio Tinto's nearby Diavik operation, responded with guidance showing its production will push through 9m carats this year, but the intrigue only deepened when letters were released alluding to an “alternative transaction”.

How the papers covered it

    Reuters upped the stakes by revealing that Quebec-based Stornoway is also involved in the chase, only three months after opening its first diamond mine. Stornoway and Dominion have had “talks about a potential merger in recent months”, sources said, and talks are “ongoing”.
     Dominion's largest shareholder, M&G, urged the company to open its book. “The best outcome for the owners right now is to do a proper strategic review,” said fund manager Jamie Horvat. “Maybe others will come out of the woodwork.”
    A one-time crane operator, Washington's wealth is pegged at $5.8bn. He owns a copper mine in Montana and a barging business in Vancouver, but is new to diamonds and is yet to buy a single share in Dominion. He is being advised by Byron Trott, one of America's brightest bankers, known for earning his fees.


What the banks say

    After a long standoff, Dominion “is now fully in play,” said Scotiabank analyst Tanya Jakusconek. Dominion has had “operational hiccups”, including a fire and a head office move, and is looking for a new CEO. But WashCorp's offer is “opportunistic”. There are zero synergies to be had from the deal and Dominion has only just started mining a new diamond pipe, Misery Main, which should lead to a splurge in free cash flow.
     Stornoway lacks the cash to compete, but Rio Tinto would be a “logical” suitor and De Beers could venture a bid. With shares trading below a cash offer on the table, “we would continue to be buyers.”
     WashCorp's offer is respectable, says BMO analyst Edward Sterck. Dominion has “struggled” to win “market trust” and diamonds are going through a bout of weakness. Rivals may “take a look” at Dominion, but “whether that translates into meaningful action I would be somewhat more cautious on.”
    This is just the beginning, said Canaccord Genuity. The prospect of diamond rivals coming together to create a Canadian diamond powerhouse could finally become “a reality.” One of Stornoway's largest investors is Blackstone, the private equity group, “highlighting the deep pockets” that Stornoway has access to. Its CEO Matt Manson is also well respected.
     But there are other wild cards. Vancouver-based Lucara Diamond is cash-rich and its chairman Lukas Lundin “is transactional by nature”. Kennady Diamonds is also “absolutely a player” in any potential rollup, as its flagship asset looks more like a satellite deposit than a standalone operation.