Diamond producer Rockwell recommended that its shareholders reject the hostile bid by global investment company Pala Investment Holdings on Monday, arguing that it the bid significantly undervalued the company and its upside potential.

Pala had offered to acquire all of Rockwell’s shares for $0,36 a share. Mining Weekly Online previously reported that Pala already owned 19,9% of Rockwell, and had been trying for months “to convince the management and board of directors of Rockwell to pursue a range of value-enhancing options”, including a friendly offer made to the company's board.

“No action was taken on any of these options, leaving us with no alternative but to take this offer directly to Rockwell shareholders,” said Joseph Belan, MD of Pala Investments, which advises Pala.

“The offer significantly undervalues Rockwell and would deprive our shareholders of significant upside potential from the strong production growth we anticipate over the next months and years,” said CEO John Bristow, describing the timing of the offer as “opportunistic”, given the recent decline in Rockwell’s share price.

He described the premium offered by Pala and “inadequate and unfair” and urged shareholders to “reject it.”

Rockwell claimed it enjoyed low production costs with tight cost control, despite and inflationary environment. The company also noted that it had a number of fully financed brownfield projects, which together would lead to an increase in production from the current rate of about 23 000 ct/y to about 70 000 ct/y during 2011.

Bristow also noted that Pala was a pure financial investor with no experience in running a diamond company or operational experience in South Africa

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