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Well, you can’t really bully your way into a friendly merger; and this one derailed for some interesting reasons you will see at the end of this article.
Today Peter Munk’s Barrick Gold Corp, of Toronto, announced that Barrick and its putative merger partner Newmont Mining Corp, of Denver Colorado, have finished their merger discussions but without a deal. Barrick made its announcement using the tersest of language, expressing to some extent likely their own frustration with this outcome. This is exactly what they said:
“Barrick Gold Corporation announced today that it has been informed by Newmont Mining Corporation that its Board has decided to terminate Newmont’s merger discussions with Barrick, which have been widely reported by the news media over the last week.”
“Although Barrick believes the interests of shareholders are best served through the completion of this business combination, Newmont’s Board has determined that the interests of Newmont’s shareholders are best served by remaining independent.”
In theory this could lead to a hostile bid from Barrick instead now, but if Barrick doesn’t offer cash, and it is probably too much in debt already to do so, it would likely have to offer a much richer share exchange ratio than it reportedly already had, in what were said to have been friendly discussions, now just finished, that in the end went nowhere, if it wants to be more persuasive with a formal offer by way of a share exchange.
Peter Munk even hit the newspapers last week, including an interview with the London Financial Times, touting the benefits of a merger in what has proved to be what it seemed to some at the time, namely a somewhat lame attempt to go directly over the heads of the Newmont Board to its shareholder constiuencies.
Peter Munk, who is 86, is a great Canadian and he has been an extraordinary business leader. It is quite understandable that he should wish to go out with a bang at his final Annual General Meeting of Barrick shareholders, when he retires finally later this week in favour of new Chairman John Thornton.
However some issues cannot be forced and the Newmont Board of Directors doubtless had a keener appreciation of their own value relative to Barrick’s than Munk’s own Directors could accommodate for him in terms of upping the ante. It also turns out they were offended by some of Barrick’s moves during their conversations
Barrick and Newmont have competed for two decades for the crown of being the world’s largest gold miner, and the two have more than once held discussions concerning a possible merger during that time, without ever coming to an agreement.
The latest pull-back in commodities and mining industries has hurt gold as well, leading to claims that US$1 billion in cost savings could perhaps be found with a merger. Post-merger synergies are the standard item in all merger and acquisition spread sheet analysis, even though they sometimes are more identifiable before the fact than once a merger is actually accomplished. Be that as it may, with two major mines side by side in Nevada it is quite possible some significant savings could be made.
After the Barrick announcement today, Newmont’s shares have dropped about 6% while Barrick’s own shares have risen very slightly.
The Barrick Annual General Meeting will now take place on Wednesday, when Peter Munk hands over the baton to John Thornton, with no last hurrah to be cheered off into the sunset with.
Just now we have learned, from the release by Newmont today of a letter it sent to the Barrick Board of Directors on Friday, that Newmont shut down the discussions over a possible merger in-part after seeing Peter Munk’s published remarks in the newspapers last week – these and other issues caused them significant annoyance it seems. Here is the complete text of the Newmont letter, which is addressed to the Barrick Board and signed by Newmont’s Chairman, Vincent Calarco. It is in some ways an extraordinarily frank public disclosure of details of matters that are usually shrouded in the utmost discretion:
“Over the past number of months, our two companies have been working hard to find a basis on which we could merge and realize their combined strengths. While we were hopeful that we could achieve that goal, it has become evident to us over the past several weeks that the type of constructive, mutually respectful and partnership-oriented relationship necessary to realize the potential benefits of that combination does not yet exist.
Our Board has met a number of times since we were twice told definitively last Thursday by your Co-Chairman that the process in which we had been engaged to find a basis to merge our two companies was “dead”. As you would expect, that unilateral declaration made us question whether we actually shared the vision and values that are necessary to forge a successful new company. Notwithstanding that, we persevered.
While our team has found your management team’s engagement to be constructive and professional, the same constructive nature cannot be said of our discussions with your Co-Chairman on certain fundamental strategic and structural issues over the past two weeks. Our efforts to find consensus have been rejected out of hand repeatedly. And, as we contemplated further dialogue, we read in the continuing reporting of the transaction in the financial press a pointed characterization of our company as “extremely bureaucratic and not shareholder-friendly.” Nothing could be further from the truth. Moreover, none of this suggests that we have the mutual respect or shared values today that we believe are necessary for the enterprise that would result from the combination of our companies to realize its full potential.
It is, in fact, because of our deep commitment to our shareholders that we reluctantly have had to unanimously conclude that we need to put aside our attempts to resuscitate this initiative and should pursue our course as an independent company.”
On behalf of the Board,
Vincent A. Calarco
Wow! If you are going to play the blame game do it well… this is done very well. Now it is either war or both parties go their separate ways, and more likely the latter one might think, though one can never tell for sure.