HOTLINE: Newmont-Barrick takeover spat knocks $1.5bn off combined market cap

More than $1.5 billion was wiped off the combined market caps of Barrick and Newmont on Monday April 28, after advanced merger talks ended with a bitter war of words between managers of the two companies.

More than $1.5 billion was wiped off the combined market caps of Barrick and Newmont on Monday April 28, after advanced merger talks ended with a bitter war of words between managers of the two companies.

Newmont’s shares ended the day down 6.73%, removing $888 million from the previous day’s market cap of $13.19 billion, while $653 million was shaved off Barrick’s previous market cap of $20.84 billion, as its shares finished down 3.13%.

The massive stock-market losses came as Barrick confirmed merger talks between the two had broken down, triggering an acrimonious exchange between management of both companies in which each blamed the other for the failure to reach an agreement.

First, Barrick notified investors on Monday that Newmont had broken off discussions after determining that its interests were best served by remaining independent, sending the shares in Newmont sharply lower as markets opened in New York, while Barrick stock also drifted off.

But investors started selling Barrick shares more aggressively after Newmont responded by publishing a letter it sent to the Barrick board in which it laid blame for the breakdown in the merger deal squarely at the feet of Barrick co-chairman John Thornton, and criticised his behaviour in negotiations concerning “certain fundamental and structural issues”.

“While our team has found your management team’s engagement to be constructive and professional, the same constructive nature cannot be said of our discussions with your co-chairman on certain fundamental strategic and structural issues over the past two weeks,” Newmont chairman Vincent Calarco said in the letter.

Thornton is set to succeed founder Peter Munk as chair when the latter steps down later this week. Munk was hoping to complete the merger before his departure, and in a media drive last week he blamed an impasse between the two parties on excessive bureaucracy on the part of Newmont, labelling the company “not shareholder-friendly” in an interview with the National Post.

“None of this suggests that we have the mutual respect or shared values today that we believe are necessary for the enterprise that would result from the combination of our companies to realize its full potential,” Calarco responded in the letter, dismissing Munk’s accusations.

The spat escalated again shortly afterwards on Monday, as Barrick claimed Newmont had reneged on three ‘foundational’ components of a term sheet signed by both parties on April 8.

Barrick said the points at issue were the location of the head office of the merged company, the identification of any specific assets that would be included in a spin-off company, and post-merger governance arrangements.

“Both companies were in full agreement that the merger would produce substantial added value for shareholders, through unique synergies that can only be achieved by combining Barrick and Newmont, and the spin-off and further rationalization of certain of the companies’ combined assets,” Barrick said.

The Barrick statement prompted one final response from Newmont on Monday, in which it confirmed the existence of a term sheet, but played down its significance, calling it a “preliminary draft summary of indicative terms for discussion purposes”.

“Newmont did not renege and strongly disagrees with Barrick’s characterization of events that followed. As previously disclosed, discussions with the Co-Chairman of Barrick on certain fundamental strategic and structural issues proved to be unproductive and agreement could not be reached,” Newmont claimed.

Analysts had hoped that the merger could deliver massive operational savings for both companies, chiefly from synergies that could be created from combining their mining assets in Nevada, and potentially spinning of other assets.

JP Morgan estimated the deal could result in savings of $1.9 billion over five years, and $3 billion over a ten-year timeframe.

Collectively, $1.541 billion had been wiped off the combined market cap of the companies by the end of Monday.

Mark Burton

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