Barrick Gold’s hostile bid for Newmont Mining questioned

In late February, Barrick Gold initiated a hostile takeover attempt of Newmont Mining. The offer caught many analysts by surprise, given that it was below the current price of the stock leading to speculation that Barrick Gold was attempting to disrupt Newmont Mining rather than take it over. If successful, the merger would create the largest gold company in the world. However, the merger is strongly opposed by Newmont Mining’s CEO who maintains that Barrick’s new CEO does not have the operational experience to oversee the combined entities.

Barrick’s hostile bid

On February 25th, Barrick Gold Corp (NYSE:GOLD) announced a hostile takeover bid for Newmont Mining Corp (NYSE:NEM). The outcome of their bid would result in a company owned 55.9 percent by Barrick Gold and 44.1 percent by Newmont Mining. Barrick CEO Mark Bristow stated that the merger “will create what is clearly the world’s best gold company, with the largest portfolio of Tier One gold assets and the highest level of free cash flow.”

Part of the proposed deal requires Newmont Mining to cancel its takeover of Goldcorp Inc. (NYSE:GG). However, Newmont Mining maintains that the Goldcorp deal is a much better fit for Newmont. Newmont CEO Gary Goldberg also feels that the recently appointed Barrick CEO may be challenged by the size of the merged entity. Barrick’s CEO Mark Bristow came from the smaller Randgold Resources Inc. in January after his company was acquired by Barrick.

Newmont CEO rejects bid

Goldberg questioned Bristow’s ability to lead the larger company that would result from the merger. This concern is quite valid since Bristow is currently adjusting to the larger company created by the acquisition of his own smaller company by Barrick. Goldberg also remarked that “It’s a different business…when you can’t just jump on a plane and see all three of your sites in a day.”

For his part, Goldberg is focused on Newmont’s proposed acquisition of Goldcorp which does not come to a shareholder vote until April. In the meantime, if the Newmont board rejects the offer, Barrick may fashion a direct appeal to Newmont’s shareholders. In an interesting twist, both companies have numerous shareholders in common. How they might respond remains to be seen.

Barrick’s offer described as “lowball”

Analysts mostly seem to be questioning Barrick’s offer for Newmont. A writer for Seeking Alpha describes the “shocking hostile bid” as a “lowball offer.” While such takeover bids typically price the target at a premium, Barrick offered a valuation of Newmont that was 8 percent below the previous Friday’s closing price. This valuation is particularly questionable since Newmont has “outperformed Barrick by ~90% since 2014.”

Pierre Lassonde, chairman of Franco-Nevada, said, “it’s the first time I’ve ever seen a hostile at a discount to the stock price. It makes no sense.”  He noted that Newmont shareholders are unlikely to be interested given that in the preceding four years the shares of Newmont have risen 65 percent while Barrick’s stock has dropped 22 percent. Lassonde described Barrick as “throwing smoke bomb[s] left, right, and center to distract people” in what may be an attempt to lower Newmont’s stock price so that a merger can eventually go through.

That explanation sounds a bit convoluted and not quite as convincing as the possibility that Barrick is attempting to disrupt Newmont’s acquisition of Goldcorp while also undermining a major rival. But that might also lead to a drop in Newmont’s stock which could raise investor interest in Barrick.

Newmont CEO Goldberg seems to concur with the second interpretation stating that the offer is actually a “desperate and bizarre attempt to muddle up our deal” with Goldcorp. He points out that “it’s certainly not the sort of behavior that will appeal to investors who want to invest in serious, well-run companies.” Given that Barrick also took what is described as an “unusual step early in a takeover attempt” when it “released a public letter to the board of Newmont with details of its proposal.” Combined with Newmont’s greater success and the more limited experience of Barrick’s new CEO, this approach does seem a bit of a mess.

Barrick’s bid could be good for Newmont stock

In the end, it is possible that Barrick’s hostile takeover attempt may be of benefit to Newmont. Currently, a wide range of analysts and media outlets are pointing out that Newmont is a much more successful company than is Barrick. This may lead new investors to consider Newmont stock at a time when exposure to gold might seem a smart hedge given uncertainties about the coming year. Add the aggressive and largely convincing statements of Newmont’s CEO and the whole affair could make Barrick’s new, less experienced CEO look like he’s already fumbling the ball his second month in his new role. Even if one is not considering acquiring these stocks, it should be an interesting bit of drama to observe as it unfolds.

(Featured image by Piotr Swat via Shutterstock)