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Morningstar | Newmont Board Rejects Barrick’s Acquisition Proposal; We Continue to Think Goldcorp Deal More Likely

On March 4, Newmont’s board of directors announced that Barrick’s unsolicited acquisition proposal was not in the best interests of Newmont’s shareholders, an unsurprising roadblock. As we said in our Feb. 25 note, we thought Newmont’s acquisition of Goldcorp was more likely to be completed than a switch to Barrick’s proposed merger. Newmont argues that Barrick’s bid not only offers a negative premium to shareholders, but also does not constitute a “Newmont Superior Proposal” as defined under its merger agreement with Goldcorp. As a result, Newmont management does not believe it can legally engage in merger discussions with Barrick, which creates further complications to a potential deal. Barrick faces the additional challenge of time, as Newmont’s and Goldcorp’s deal is set to close in the second quarter of this year.

As we write, Newmont shares trade at about a 7% discount to Barrick’s all-share offer. We believe current prices imply that the market thinks an improved offer would be needed to entice Newmont shareholders on to Barrick’s side. We continue to think Newmont’s Goldcorp acquisition is likely to close, and that the combined company will be unpalatable for Barrick to acquire given the pro forma size. All three companies’ no-moat ratings and fair value estimates are unchanged: Barrick at $12 per share and CAD 16 per share; Goldcorp at $11 per share and CAD 14.50 per share; and Newmont at $38 per share. Goldcorp’s and Newmont’s fair value estimates continue to assume their transaction closes.

As part of its rejection of Barrick’s proposal, Newmont also published a proposed joint venture term sheet for the companies’ Nevada assets. Barrick has argued that the acquisition is necessary, as a single management team will be most effective. It had also previously argued that Newmont wanted to maintain control, despite contributing less value to the joint venture.

Although Newmont’s proposed structure is more complicated (as any joint venture will tend to be), we don’t think it prevents synergy realization, as both parties still have incentives to maximize value. In addition, Newmont’s term sheet proposes its joint venture ownership at 45%, giving control to Barrick. Newmont CEO Gary Goldberg has said that the company is open to negotiation on joint venture terms.

Finally, Barrick’s and Newmont’s history of acrimonious public discussions seems to be returning. In Newmont’s presentation rejecting the bid, the company published an email that then Randgold CEO and current Barrick CEO Mark Bristow sent Goldcorp Chairman Ian Telfer, complimenting Goldcorp’s portfolio of assets— a stark difference to the language Barrick is using to argue against Newmont’s Goldcorp acquisition. Although strong language is common when fending off an unsolicited bid, the history between these two companies gives us additional pause for the potential that any merger discussions will turn friendly.