Egos and reputations will be on the line on December 7, the day of the crucial meeting that will make or break Harmony Gold’s hostile bid for mining house Gold Fields.
It is the day Gold Fields’s shareholders vote on the proposal that their company should merge its mining interests outside South Africa with those of Canadian miner IAMGold.
The merger would result in a new company, to be called Gold Fields International (GFI), owned 30% by IAMGold’s present shareholders and 70% by Gold Fields’s.
If the deal was that simple, pre-Christmas life would be fine for those shell-shocked mining executives hoping to go on furlough and join the lemming rush out of Johannesburg towards the coast. But, unless an indisputable majority of shareholders represented at the meeting vote in favour, it will be back to the trench warfare that now marks the fight for control of Gold Fields.
Let’s take the clearest option, that at least 50% of all Gold Fields shareholders vote in favour of the IAMGold deal. It would represent a proxy rejection of Harmony’s bid, as its bid for Gold Fields is predicated on the IAMGold merger not taking place.
Worse, from Harmony’s standpoint, is that Russia’s Norilsk Nickel would be free to abrogate its “irrevocable” agreement to deliver its 20% shareholding in Gold Fields to Harmony in exchange for 1 275 Harmony shares for each of Gold Fields’s. That “irrevocable” agreement, too, is predicated on the IAMGold deal not proceeding. And that, in its turn, would almost certainly kibosh Harmony’s bid. Harmony only garnered acceptances from 10,8% of Gold Fields’s shareholders in the early-bird part of its bid, far less than the 34,9% it had been targeting, less than the 20% that, before the count, Harmony CEO Bernard Swanepoel had said would leave him “ecstatic”, and even less than the 15% that would “delight” him.
At the other end of the spectrum, if a majority of Gold Fields shareholders — excluding Harmony and Norilsk — reject the IAMGold merger, it will be a significant vote of no confidence in Gold Fields CE Ian Cockerill and his management team. It would also be an indirect indication that Gold Fields’s shareholders might accept Harmony’s bid for the rest of their shares, perhaps on more favourable terms than those currently on the table.
But what about an outcome that does not give a clear signal? Then it will be back to the trenches of corporate war where advances are measured in inches and resources bled away in legal fees.
Last week Gold Fields “won” a decisive battle when the Competition Appeal Court ruled that Harmony could own the 10,8% of Gold Fields it had acquired, but could not vote those shares. Great rejoicing in the Gold Fields field headquarters.
Harmony’s counteroffensive this Tuesday was just as devastating. Its generals dashed off to the judge president of the Supreme Court of Appeal and won a ruling that they interpreted as allowing them to vote the 10,8% shareholding next week. The judge president pointed out that if next Tuesday’s vote was indecisive — if, in other words, Harmony’s vote would have tilted the outcome the other way — Harmony could go to court to have the IAMGold deal reversed.
By early this week the legal battles were resembling hand-to-hand combat, with no quarter being given. Gold Fields stepped outside the legal battleground and came up with revised terms for the IAMGold transaction.
Recent relaxations of South Africa’s exchange controls, Gold Fields reckoned, meant that it need not include a $200-million cash payment in the merger terms. The argument was technical. But, essentially, the new exchange control rules would allow Gold Fields (subject to Reserve Bank approval) to use South African revenues to fund the international expansion of GFI.
The original $200-million, Gold Fields said, had been needed for future developments that might have been stymied by an inability to shift funds out of South Africa.
Ironically, the stumbling block next week could prove to be Norilsk. Its oligarch owners are incensed that their 20% investment in Gold Fields has been effectively devalued by a fifth these past few weeks by the decline in Harmony’s share price. If Norilsk decides that its “irrevocable” agreement does not oblige it to vote against the IAMGold proposal, it could tilt the outcome decisively in Gold Fields’s favour.
That is not as outlandish a prospect as it might seem. Norilsk’s owners have their own agenda. They want out of Russia and the clutches of the Kremlin’s taxman and exchange control mandarins and opportunities in free markets. They might better achieve that through a post-war deal to merge non-Russian assets with those of GFI — a deal agreed secretly with the Cockerill camp.
And then? It is not inconceivable that Gold Fields might sell some of its South African gold mining assets — assets that are rich but that have no growth prospects — to fund growth mining opportunities beyond our borders and the reach of our own exchange control mandarins.
Perhaps it could all have been settled by negotiations between the antagonists, averting a war. But then, you cannot rely on politicians or generals to act sensibly when pride clouds perspective.