July 14, 2017 / 8:33 PM / 2 years ago

UPDATE 1-Washington Companies in talks to buy Canada's Dominion Diamond -sources

(Adds comment from Dominion Diamond, updates stock price)

By Susan Taylor and John Tilak

TORONTO, July 14 (Reuters) - Canada’s Dominion Diamond Corp , the world’s third-largest diamond producer by market value, is in advanced and friendly talks with The Washington Companies on a sweetened cash takeover bid, sources told Reuters this week.

Negotiations are focused on the two sides settling on a price, said the sources, who declined to speak publicly on the matter. A deal could be announced within weeks, they said.

Trade in Dominion shares was halted on the Toronto Stock Exchange minutes after the stock rose 4.74 percent, following Reuters’ report on the talks.

U.S.-listed shares, which peaked at $13.60 after the report, closed at $13.48 in New York, up 5.6 percent.

It was unclear how much Washington had increased its initial unsolicited cash proposal, of $13.50 a share, the catalyst for Dominion to formally put itself up for sale in March.

At $13.50 a share, the acquisition would be worth nearly $1.09 billion (C$1.38 billion).

Dominion, which owns a majority stake in the Ekati mine and minority share of the nearby Diavik mine in Canada’s Northwest Territories, rejected Washington’s initial advance, saying it undervalued the company.

In a statement Friday afternoon, Dominion said it has not made any decisions related to strategic alternatives and there is no assurance that its review will result in a transaction or change in strategy.

Washington, which declined to comment, is a group of privately held North American mining, industrial and transportation businesses founded by industrialist and entrepreneur Dennis Washington.

Washington and other interested parties signed confidentiality agreements to review company data, Dominion said May 1.

The sales process, a rarity in the tightly-controlled global diamond industry, attracted the Canada Pension Plan Investment Board (CPPIB), sources told Reuters.

CPPIB, Canada’s biggest public pension fund, was joined in the data room by small Canadian producer Stornoway Diamond , which held merger talks with Dominion earlier this year. It was unclear if either had submitted formal bids.

CPPIB looked at Dominion’s books in 2015, sources said, when the miner worked with investment bank Rothschild & Co to consider ways to boost shareholder value, including a potential sale.

There has been ongoing market speculation that global miners Rio Tinto and Anglo American were also eying Dominion.

Rio operates and holds a 60 percent stake in Diavik, while Anglo’s De Beers unit operates the Gahcho Kue diamond mine in the Northwest Territories.

Dominion hired Toronto-Dominion Bank earlier this year to run the sales process. (1 Canadian dollar = $0.7898) (Susan Taylor)

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