The bid by gold miner Harmony Gold for rival Gold Fields is “under water” and history shows that such a hostile offer has never succeeded, Gold Fields chief executive officer Ian Cockerill said on Wednesday.
“In the history of hostile takeovers, 100% of all bids that are under water have never been successful. I see no reason why Harmony’s bid should be the exception to the rule,” he said.
Harmony is currently attempting to merge with Gold Fields and is offering 1,275 Harmony shares for every Gold Fields security held.
At present, Gold Fields share price is trading close to 1,40 times Harmony’s share price on the JSE Security Exchange, thus providing no incentive for Gold Fields shareholders to tender their stock into Harmony’s subsequent offer, which closes on March 18.
Harmony has thus far acquired 44Â 416 Gold Fields shares from its subsequent offer. Gold Fields issued share capital is 492-million shares.
Harmony’s two key shareholders — mining group African Rainbow Minerals, which has a 16,2% stake in Harmony, and fund manager Allan Gray, which has a 15% interest in Harmony — have both said that while they support the bid, they don’t support an increased offer to Gold Fields shareholders.
Gold Fields shareholders have called for Harmony to increase its offer ratio to at least 1,50 and Cockerill has previously said that the minimum acceptable Harmony offer ratio would be 1,73.
The key outstanding obstacle to Harmony gaining beneficial ownership of the Gold Fields shares it has received from its bid, is South Africa’s Competition Commission’s ruling on the matter.
“Gold Fields’ view remains, as it has been for some time, that there has already been a referendum — the shareholders have already voted. That vote saw Harmony acquire 11,5% of Gold Fields [from its early settlement offer] and 88,5% of shareholders said ‘no thank you’. I think that is pretty explicit,” Cockerill said.
“The market is saying that the bid is becoming increasingly less likely in the absence of an increase in the offer,” he added.
“I think it is everyone’s best interest to acknowledge that [Harmony’s bid] has been a good try, but it hasn’t been successful and now it is time to move on,” Cockerill said.
Harmony chief executive officer Bernard Swanepoel has said that his company’s bid for Gold Fields could continue for years.
However, Gold Fields head of exploration Craig Nelsen says that such a scenario was unlikely given Harmony’s “balance sheet issues”.
During the December quarter, Harmony had a net cash outflow of $103-million and ended the quarter with cash and cash equivalents of $53-million.
For the December 2004 quarter, Gold Fields reported headline earnings per share of nine cents and Harmony reported a headline loss per share of 88 cents, which was its sixth consecutive quarterly loss.
At this stage, indications that Cockerill has received are that most Gold Fields shareholders would prefer to keep their exposure to Gold Fields and do not want exposure to Harmony’s gold mining assets.
“They like the business model we’ve got, they like our growth strategy, they like the fact that the benefits are flowing through to the local [South African] operations from the cost saving and production initiatives. We have clearly shown that we are able to cope with a strong rand environment,” Cockerill said.
Via its bid for Gold Fields, Harmony has raised an effective $600-million in Gold Fields shares, however, this has been done at an “immense” dilution to Harmony’s existing shareholders, Cockerill said.
Thus far Harmony’s bid has cost the company about R101-million and Gold Fields defence has cost it R83-million.
“Let’s be honest, Harmony has a track record of being quite dilutionary [for its shareholders],” he added.
Gold Fields is troubled by the delay in the release of Harmony’s audited resources and reserves statement, Cockerill added.
At the time Harmony made its bid for Gold Fields public on October 18, 2004, Swanepoel said that an audit of its resources and reserves would be released in early December.
“Why is it taking so long to come out? This is supposed to be an update on an existing Competent Persons Report (CPR),” Cockerill said.
Nelsen said that there remained a discrepancy of between 12-million and 14-million troy ounces in Harmony’s reserves statement.
“I suspect there is still a discrepancy between what the independent auditors feel are reserves and what Harmony feels are reserves,” Nelsen said.
“This is a process that should have taken them a month or six weeks,” Gold Fields spokesperson Willie Jacobsz said.
Steffen, Robertson and Kirsten (SRK) Consulting are currently conducting an audit of Harmony’s gold reserves and resources.
Cockerill said Gold Fields continues to attempt to engage with Norilsk Nickel representatives. Russian mining group Norilsk Nickel has a 20.03% stake in Gold Fields.
“There has certainly been good interaction with them over the past couple of months. I certainly hope that we will continue to work with Norilsk to make them money,” Cockerill said. – I-Net Bridge