The cost to create the world’s largest gold company: A 17 percent premium for a $10 billion all-shares acquisition that faces some big-time challenges down the line.
Newmont Mining Corp.’s deal for Goldcorp Inc. stands in stark contrast to the recent zero-premium merger between Barrick Gold Corp. and Randgold Resources. The key question: Why? In October, Goldcorp shares fell to their lowest since 2002 after the miner reported lower output and higher costs than expected.
Since then the stock improved only marginally before today. The merged company will have the world’s largest production and reserve base, and the kind of liquidity and diversified assets required to attract institutional investors. At the same time, "Newmont has some difficult times ahead with drastic surgery needed at Goldcorp,” according to John Ing, an analyst at Maison Placements Canada.
"In the short term and medium term, the deal is not good for Newmont," Ing said in an interview with Bloomberg News on Monday.
When the price of both the acquirer and the target fall following an M&A announcement, that is generally a sign investors are not all that happy with the price being paid and/or the prospects for the merged entity. The market’s conclusion therefore is that shareholders are on the hook for the cost of the merger.Click HERE to subscribe to Fuller Treacy Money Back to top