Endeavour Scores On Gold MergerBanks and Amex score on gold merger frenzy
By: Tim Wood
Posted: '29-MAY-04 00:54' GMT © Mineweb 1997-2004
NEW YORK (Mineweb.com) -- The American Stock Exchange and six banks - RBC, BMO, CIBC, National Bank, GMP and Endeavour - struck a rich vein in this week's opportunistic attempt to break up the putative takeover of Wheaton River [WHT] and IAMGold [IAG].
28.2 million shares worth over $115 million were trades as arbitrageurs got stuck into bridging the hostile bids from Coeur d'Alene [CDE] for Wheaton River, and from Golden Star [GSS] for IAMGold. IAMGold and Wheaton are days away from a shareholder vote on their merger, which was announced earlier this year. Coeur and Golden Star have agreed to share the burden of the IAMGold break fee if they prevail.
Golden Star has made a very conditional all stock offer worth $854 million, or $5.66 per IAMGold share. The announced premium was quickly whittled away with Golden Star losing more than 6% to reduce the offer premium to 7.5 cents, or 1.3%, above IAMGold's price. IAMGold gained nearly 4%, making its bid for Wheaton slightly richer and helped by investors selling down Coeur.
The bid spread for Wheaton narrowed from 22%, or $381 million at Thursday's close, to 10%, or $171 million at Friday's close. Coeur's cash and scrip offer is worth an effective $3.39 per Wheaton share, or just over $2 billion, versus IAMGold's $3.10, or $1.84 billion, which compare with the Wheaton price of $2.91 and market capitalization of $1.7 billion. The final price from Coeur would be affected by takeup of the cash inducement which is capped at $205 million.
Rationale
The bids generated little genuine enthusiasm among professional investors. People we canvassed were jaded on the transactions, seeing companies stretching for accretion as urgency builds to deploy premium rated scrip before the cycle turns. The only genuine winners are Wheaton River shareholders and the various advisors. The advisors are cashing in some novel ideas, and Wheaton shareholders have one offer banked and another to fall back on should things go awry.
The anecdotal consensus is that IAMGold has done enough to take Wheaton home and become Axiom Gold, the proposed new name. IAMGold apparently has received support from around 20% of its shareholders and will be in an even stronger position when actual voting takes place.
Golden Star has made much of IAMGold shareholder disaffection over the Wheaton offer, however there was only one partisan investor egging the Ghana miner on during the company conference call. Golden Star is seen acting because it is inevitably in the cross-hairs of the Axiom combination.
Nevertheless, Golden Star does win kudos as an operator of considerable experience and ability with great competence in West Africa. The Axiom combination weakness remains a lack of operating depth, but investors generally approve of the asset, cash flow and management foundation to address that. As HSBC analyst Victor Flores noted during the investor conference call, cynics will see Golden Star converting its habitual stock offerings to a single large transactions. Savings from rationalizing redundant infrastructure is real, as are substantial tax losses, however the overall return is probably quite slim and leaves little room for error.
It is not inconceivable that another bidder may now strike at Golden Star given the fall in its share price. Randgold [GOLD] has just expanded in Ghana and could use the knowledge banked in its war with AngloGold [AU] for Ashanti to make an offer for Golden Star. However, parity in net asset valuations remains crucial and Randgold suffers a relative discount which would make a transaction risky.
Wheaton River might turn the tables for a truly interesting transaction chain. It could immediately launch a counter bid for Golden Star, thereby neutralizing antagonistic IAMGold shareholders, and setting in motion a deal many see as inevitable.
Meanwhile, Coeur had a very tough time convincing skeptical analysts of the merits of its offer. There is some concern that Coeur is disrupting its silver image by playing up the gold potential so heavily. Still, it presented a compelling case to Wheaton shareholders based on participating in one of the biggest precious metals companies in the world as opposed to the struggling wannabe it painted IAMGold as.
As cogent as the case is, it comes down to whether or not Wheaton shareholders will accept Coeur scrip over IAMGold's, even with a premium and improved liquidity. There's no assurance that they would.
Superior offer
Time and the superior offer clauses in the IAMGold takeover agreement are critical. According to the merger terms, Wheaton River's board can only consider a competing offer of at least $4.12. Similarly, IAMGold's board is guided by a price of roughly $7.49. Clearly, neither bid meets the requirement. however, both companies have wedged into a gray area surrounding the date the hurdles were set.
Golden Star closed at $6.78 on March 30 for a retrospective bid price of $7.81 per IAMGold. Likewise, Coeur closed on that day at $6.91 for a supposedly trumping offer price of $4.83.
It is unlikely that either board will accept that argument, but it could make for an interesting legal tussle.