Barrick's aggressive bid is coming at the right time: Shareholder
Barrick Gold Corp. (ABX.TO) has no intention of increasing its hostile offer for Newmont Mining Corp. (NEM.N), according to a person familiar with the matter who asked not to be identified because the talks are private.
On Monday, Barrick proposed to buy Newmont in an all-share US$17.8 billion hostile deal that valued the rival miner’s stock at 8 per cent below the prior closing price. Newmont responded that its board would consider the offer, while simultaneously criticizing Barrick’s operating model and saying that its own pending takeover of Goldcorp Inc. offered “superior benefits.”
The fact that Barrick won’t increase its offer is further indication “that their unsolicited negative premium bid is really intended to scuttle our previously announced combination with Goldcorp rather than generating value for Newmont shareholders,” Omar Jabara, a spokesman for Newmont, said by phone. “Their intentions are highly suspect.”
The world’s two largest gold producers have spent this week making their cases to their biggest investors, most of whom own shares in both companies. Barrick’s chief executive officer has defended the lack of a premium in the deal, saying there are US$7 billion in synergies from the combination and that will add value.
Toronto-based Barrick has also flagged the share prices of both companies on Feb. 20, before rumors began circulating of an offer, to explain its proposed bid price. At that point there was almost no discount, making the offer a zero-premium deal.
Newmont’s Jabara pushed back against that argument. “No deal has been approved by our shareholders and so what they’re proposing is a negative premium based on where our share price is trading right now,” he said. “Essentially they are cherry-picking a date to make it look the way they want it to look.”
Barrick declined to comment.
Executive Chairman John Thornton earlier this year led Toronto-based Barrick’s acquisition of Randgold Resources Ltd. in a zero-premium deal. He and CEO Mark Bristow view this type of transaction as a way forward for an industry that has been criticized for bidding up assets when gold prices are high.
Bristow said Thursday that the company has received less push-back from investors on this zero-premium deal than the one for Randgold, “where we had to do some convincing of the logic of an at-market transaction.”
In contrast, Newmont offered a 17 per cent premium in its own deal to buy Goldcorp, announced last month. That transaction would be scuttled if Barrick’s offer is successful.
Barrick fell 2.3 per cent to US$12.35 at 12:16 p.m. in New York, while Newmont slipped 1.3 per cent to US$33.69, as spot gold prices declined. Based on those prices, Newmont is still trading 6.2 per cent higher than Barrick’s all-share offer, indicating investors believe there may be a higher bid for Colorado-based miner in the future or that the Barrick bid may not succeed.
“It seems arrogant on Barrick’s behalf to assume shareholders will believe in the value creation of the merged Barrick-Newmont entity as the offset to a premium that’s not paid in the marketplace directly in the bid,” said Douglas Groh, portfolio manager at Tocqueville Asset Management in New York, which owns 1.35 million shares of Newmont and 175,625 shares of Barrick. “It’s cheeky on their part to assume shareholders are so naïve to assume premium value will come through their execution.”
Newmont CEO Gary Goldberg has called Barrick’s move a “desperate and bizarre” attempt to derail the takeover of Goldcorp.
“I really am not sure what they’re trying to accomplish,” Goldberg said in an interview earlier this week. “It’s a negative premium offer and on top of that would add a lot of risks to Newmont shareholders in some very unattractive jurisdictions.”
--With assistance from Susanne Barton