* Washington raises offer to 14.25/shr from $13.50/shr
* Biggest shareholder backs sweetened offer
* Deal expected to close in Q4
* Dominion’s Canadian shares rise 5 pct (Recasts with Washington Co, shareholder interview, analyst comment, background)
By Nicole Mordant and John Benny
July 17 (Reuters) - Canada’s Dominion Diamond Corp on Monday agreed to a sweetened takeover offer of $1.2 billion from U.S. billionaire Dennis Washington that will take private the world’s third biggest diamond company by market value.
U.S.-listed shares of Dominion leapt 4 percent to $14.04, while its Toronto-listed shares rose nearly 5 percent, after Dominion said Washington Companies will acquire all of shares for $14.25 per share in cash.
The offer price is 5 percent higher than the Missoula, Montana-based company’s March 19 offer of $13.50 per share, which Dominion rejected as too low.
Reuters reported on Friday that Dominion was in advanced and friendly talks with Washington on a sweetened cash takeover bid.
M&G Investment Management, Dominion’s biggest shareholder with a 6.2 percent stake, supports the transaction, M&G fund manager Jamie Horvat said.
“Management and the board did a very good job of maximising shareholder value,” Horvat said in an interview.
Washington Companies, founded by industrialist and entrepreneur Washington, has mining, industrial and transportation businesses across North America.
Dominion, which owns a majority stake in the Ekati mine and minority share of the nearby Diavik mine in Canada’s Northwest Territories, launched a sales process in March following the initial unsolicited approach from Washington.
A competing bid for Dominion is unlikely other than from global miner Rio Tinto , Dominion’s joint venture partner at Diavik, BMO analyst Edward Sterck said.
“Rio Tinto’s involvement cannot be ruled out, but after exiting a period of asset shedding, management may feel that for a first acquisition to be in diamonds may not be digestible for investors,” Sterck said in a client note.
Rio Tinto could not immediately be reached for comment.
Washington had an “initial discussion” with Rio before it made its sweetened offer, Washington Companies President Lawrence Simkins said in an interview. Those talks will now resume, he added.
Washington will keep Dominion’s headquarters in Canada and appoint a new chief executive.
The proposed transaction is subject to Canadian regulatory approvals. Simkins said talks with Ottawa would start on Monday.
The deal, which is expected to close in the fourth quarter, also requires approval from more than two-thirds of Dominion shareholders.
Washington’s higher offer came after the Canadian Pension Plan Investment Board, the country’s biggest pension fund manager, was reported to be considering a bid for Dominion.
Canadian small producer Stornoway Diamond Corp had also held merger talks with Dominion earlier this year, Reuters reported in March, citing sources. (Reporting by Nicole Mordant in Vancouver and John Benny in Bengaluru; Editing by Maju Samuel and Marguerita Choy)