Gold Fields has stood by its decision to pursue Canada’s Yamana Gold despite the eleventh-hour collapse of its $6.7bn (about R119bn) takeover bid, and it is expected the group will look for other assets to boost its production.
The mining firm’s pursuit of Yamana was trumped by Agnico Eagle Mines and Pan American Silver’s $4.8bn joint bid this week, but it will walk away with a $300m break fee, about 3% of its market cap.
CEO Chris Griffith told journalists this week that the board was supportive of the company strategy to view its portfolio of assets.
“The board is completely supportive of the strategy of the company to look at the portfolio of assets that we have for the long-term, as we have done many times. That’s the reason this company is 130 years old, not three years old.
“We look at the long term and the long-term strategy. And just because one option we looked at has come to naught, it hasn’t actually. It has come to $300m. So, overall, if you look at six months’ worth of work, you could argue that’s not a bad return. So, it hasn’t come to naught,” he said.
Griffith said there were a number of things in the pipeline.
“My job is not for six months, my job is to look at the next 10, 15 and 20 years and so is the board. We are confident and it was at the back of the confidence in our company, strategy and financial discipline that we chose not to make an increased offer,” he said.
The break fee Gold Fields
will be paid by Yamana
— $300m
He said the rival deal confirmed that Yamana has a good set of assets.
“We feel no shame in saying we evaluated a number of opportunities and we decided to chase down what we thought was the best opportunity. The board and the management team looked at the options and believe this is the best opportunity on the table. We are not apologetic for chasing down what we think is the best opportunity,” he said.
The company announced its intention to merge with Yamana in May, but the news was poorly received by shareholders who raised concerns about the premium Gold Fields planned to pay.
Gold Fields, which has worked since May to get shareholders to warm up to the deal, terminated the transaction this week after the board decided not to match the rival bid in line with its capital allocation discipline.
Griffith said Gold Fields had decided not to enter into a bidding war by making a counterproposal to Yamana given it viewed its bid as fair and a superior offer over the longer term.
Commenting on the premium shareholders had raised, he said an independent valuation by the Canadian Imperial Bank of Commerce showed that the value that Gold Fields planned to pay for Yamana was equal to roughly where the exchange ratio of the two companies has been over five years.
Asked whether the 21% increase in Gold Fields’ share price since the announcement of the rival bid for Yamana was due to investors banking on the deal not going through, Griffith said there were a number of things at play, including the unwinding of the short positions.
We feel no shame in saying we evaluated a number of opportunities and we decided to chase down what we thought was the best opportunity
Andrew Bahlmann, corporate and advisory CEO at Deal Leaders Africa, said: “The big picture is that one way or another Gold Fields needs to address its declining production. The company’s stated strategy is to expand, particularly in South America where such assets tend to be less expensive.”
Bahlmann said given that shareholders had come around to the view that the Yamana deal was preferable to slow production decline, it is likely that they may anticipate the deal being replaced with another, similar strategic deal.
“I believe that far from being relieved the deal has fallen through, Griffith will now double down on looking for another M&A deal,” he said.
Makhosi Nyamela, equity research analyst at FNB, said the rival bid had indicated the best way out of a dilemma the shareholders faced.
“The Yamana and Gold Fields board spent a lot of time orientating Yamana shareholders to Gold Fields as they were sceptical of owning shares of a company in the JSE. With Agnico and Pan American you own a company in North America. The Yamana shareholders will be more than satisfied with the rival bid,” said.
Nyamela said the $300m breaking fee was a better outcome for Gold Fields shareholders.
“This is the best thing that could happen. However, I do not think Gold Fields management likes this outcome,” he said.
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