Barrick Gold’s [stock_market_widget type="inline" template="generic" color="default" assets="ABX.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] dream of creating the biggest gold miner in the world will have to wait as Newmont Mining [stock_market_widget type="inline" template="generic" color="default" assets="NEM" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has rejected the former’s “all-stock nil premium” hostile takeover bid worth $18 billion. Barrick had released a press release last month stating that it has “reviewed the opportunity to merge with Newmont Mining,” but Newmont management believes that its acquisition of Goldcorp will be a better deal for investors.
Newmont’s Board Cold On Offer
According to Newmont CEO Gary Goldberg:
He believes that the Goldcorp acquisition gives a “superior value creation opportunity” as he went on to add:
“The combination with Goldcorp is significantly more accretive to Newmont’s shareholders on all relevant metrics compared to Barrick’s proposal, even when factoring in Barrick’s own synergy estimates. Realizing value through Barrick’s proposal for Newmont’s shareholders hinges entirely on a new management team that lacks global operating experience and is only two months into its own transformational integration.”
More specifically, Newmont believes that Barrick’s proposal will dilute its net asset value (NAV) per share by 4% before accounting for any synergies. On the other hand, Goldcorp is expected to deliver twice the accretion to Newmont’s NAV per share as Barrick’s portfolio contains assets in several high-risk and unfavorable jurisdictions where it is plagued with sustainability and operational issues.
Barrick-Newmont Common Ground Lies In Nevada
However, as a counter offer, Newmont believes that a joint venture between the two companies in Nevada will be more feasible for both companies so it has submitted a term sheet to Barrick proposing the same. According to Newmont, such a JV will help the two companies realize synergies and bypass the other risks and complexities that Barrick’s hostile bid brings.
Newmont has proposed that Barrick holds a 55% economic interest in Nevada operations and the remaining will be held by Newmont Goldcorp. Both companies will have equal representation on the management and technical committees of the JV. The operational management of the proposed JV will be jointly appointed by both companies to carry out the day-to-day operations.
However, Barrick CEO Mark Bristow is of the opinion that it needs to have control over the operational aspect of such a JV for it to work considering that it will hold the majority economic interest. Mr. Bristow has also questioned the split being offered by Newmont, stating that he believes a 63%-37% split in favor of Barrick at Nevada will be more feasible based on consensus valuation.
Mr. Bristow has stated that he will soon invite the Newmont CEO formally for discussions about a potential JV in Nevada. However, it remains to be seen if the discussions bear fruit as prior merger talks between the two companies back in 2014 had fallen through due to disagreements. With Newmont having already stonewalled Barrick’s hostile offer and the CEOs of both companies at potential loggerheads over the structuring of the Nevada JV, a result looks like a far-fetched conclusion for now.
