Gold Fields share price rose nearly 3% - a sign of market approval - after it refused to be drawn into a bidding war for Yamana Gold as its board had unanimously determined that it would not offer to change the terms of the transaction.
On Friday, Yamana announced that it had received another offer from Agnico Eagle Mines and Pan American Silver (PA), and its board had resolved that the new proposal was superior. Yamana gave Gold Fields five business days to amend the terms of its offer, although it was not forced to.
Deal Leaders International CEO, Corporate and Advisory Andrew Bahlmann said yesterday,: “The fact that Gold Fields’ stock rose in value on the news suggests shareholders believe, like myself, that Gold Fields won’t enter into a bidding contest for Yamana.
The share rose to a high of R158.59 after Gold Fields’ statement.
Yamana said the joint offer would provide it with a $5 billion (R90bn) cash-and-stock deal that was superior to Gold Fields.
In the Gold Fields bid for the firm, it had offered 0.6 of its shares for each Yamana share held.
But Gold Fields said yesterday it would not revise its offer.
Gold Fields said its board had convened to consider the joint offer of PA and Agnico for Yamana, but after discussions it still believed that the Gold Fields transaction remained strategically and financially superior to the joint offer.
Bahlmann said: "Deal Leaders International believes that Gold Fields would be ill-advised to change the terms of its offer for Yamana Gold after the rival bid from Agnico Eagle and PA. The bid stands on its strategic merit rather than on sweeteners to its price, which was a fair offer for shareholders in both Gold Fields and Yamana."
He said this was because Gold Fields’ move on Yamana recognised the two companies were a highly complementary fit of operating assets.
“This deal differs from recent mining mergers, which typically aim primarily at consolidating assets to minimise costs and maximise shareholder returns. Gold Fields’ Yamana offer already came at a premium because the deal adds considerable value to Gold Fields.
"This is a strategic long-term move by Gold Fields, which is to be applauded, but it must stand on its strategic merits rather than become the subject of a bidding war. The rival deal splits Yamana, and I cannot see this as benefiting the US company or its shareholders. PA and Agnico cash-and-stock deal would see PA acquire Yamana, while Agnico would buy Yamana’s Canadian assets," Bahlmann said.
"I also believe Gold Fields would struggle to carry shareholders for a higher bid, especially given there is a $300m break fee Yamana would have to pay Gold Fields. Gold Fields has already faced investor criticism over the initial 34% premium offered in the deal, though that premium was quite acceptable given South African miners are typically under-rated by international standards," he said.
Bahlmann said Gold Fields' share price dropped by 20%, which increased by 17% when a competing offer arrived, indicating the current Gold Field offer was perceived as expensive by its shareholders.
“The Yamana board might prefer the cash under prop to the PA offer. Furthermore, the Gold Fields offer requires 75% shareholder approval from GFI (Gold Fields Investors) and 66% from Yamana shareholders. The PA deal is less onerous and requires '50%+1' approval from PA and no shareholder approval for Agnico," he said.
Umthombo Wealth Equity and ESG analyst Sandile Magagula said,“It’s a pricey deal for GFI trusted and loyal shareholders, coming with 40% dilution on existing shareholders value. That’s ginormous and equivalent to 10 years of GFI dividends.
“I believe the deal is destructive with lack of buybacks and dividend uncertainty in the horizon to unwind scale of dilution. It is, therefore, destructive to existing shareholders... Most likely , Yamana shareholders will find the latest offer more attractive to GFI offer given the cash component , after all, we all know cash is king.”
The meeting of Yamana shareholders to approve the transaction is scheduled for November 21, while Gold Fields' general meeting to approve the transaction will be held on November 22.
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