Newmont Rescues Goldcorp Acquisition with a Special Dividend

Just when it looked like Newmont Mining’s [stock_market_widget type="inline" template="generic" color="default" assets="NEM" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] acquisition of Goldcorp [stock_market_widget type="inline" template="generic" color="default" assets="G.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] might run into hot water, management found a smart way to avoid trouble and ensure that the transaction goes through. Newmont announced that it would pay a one-time special dividend of $0.88 per share to its shareholders once the deal is approved.

The conditional dividend will be paid to shareholders of record as on April 17, which falls before the date when the deal is expected to close. However, shareholders would need to approve the merger before they can get the dividend payout on May 1, 2019. Newmont has clarified that the special dividend’s payout depends on the outcome of two shareholder meetings that will be held on April 4 and April 11.

Newmont expects the Goldcorp transaction to close after these two meetings, assuming that shareholders of both gold mining companies approve the resolutions.

Why is Newmont Warming Investors up with a Dividend?

Certain shareholders were opposed to Newmont’s valuation of Goldcorp. The likes of Paulson and Co. and Van Eck weren’t comfortable with the fact that Goldcorp shareholders will now enjoy the benefits of the Newmont-Barrick joint venture in Nevada. Newmont and Barrick Gold have agreed to jointly operate their Nevada assets in order to realize annual pre-tax synergies of as much as $500 million within the first five years of operation.

This joint venture was struck after Newmont’s proposed acquisition of Goldcorp. This is why Newmont investors thought that Goldcorp shareholders will get an undue benefit from the Nevada JV. As a result, Paulson believed that Newmont needs to cut its valuation of Goldcorp by as much as 23% as compared to the original deal size of $10 billion.

Also, there were concerns about the heavy payouts Goldcorp executives, such as chairman Ian Telfer, were about to get. Telfer’s retirement allowance was increased to $12 million from $4.5 million, and the executive declined the job of serving on the Newmont board as a deputy chairman.

As a result, Newmont had to resort to a special dividend to curb shareholder resentment as that could have sabotaged the deal. The dividend will cost Newmont a total of $470 million in total, though that’s payable only if the deal is approved.

Making the Desired Impact

The dividend payout has won investors over.

The good news is that the dividend payout has won investors over. According to Reuters, Paulson and Co. aren’t opposed to the deal anymore, while Van Eck International Investors is also happy with the move. The investors are happy because Newmont is paying a nice chunk of the proposed synergies from the Barrick joint venture upfront.

According to Josh Wolfson of Desjardins Securities (as reported by Reuters):

“If one assumes this dividend payment of $469 million reflects the after-tax value of the JV that would have been previously shared with Goldcorp shareholders, it would appear to be fair.”

In the end, it can be concluded that Newmont seems to have successfully rescued its bid for Goldcorp with the special dividend.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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