Barrick formalizes Placer bid; analyst upbeat on price
Released : Nov 11, 2005 1:39 PM
Canada-based miner Barrick Gold (NYSE: ABX) announced it has filed with securities regulators in Canada and the US a formal bid to acquire 100% of fellow Canadian Placer Dome (NYSE: PDG).
The offer allows Placer shareholders to choose either US$20.50 in cash or 0.7518 of a Barrick common share plus US$0.05 in cash for each common share in Placer, Barrick said in a statement.
The deal is worth some US$9bn, which is a fantastic offer, according to Haywood Securities analyst Kerry Smith.
"I think those shareholders should kiss the ground. The stock has been an absolute pig for two years and somebody's lobbed in a premium bid. The shareholders will all tender, for sure. It's only a question of whether they'll tender to this bid or a slightly higher bid," Smith said.
There is a market expectation that Barrick did not make the best bid possible on a hostile basis. "I think the market is expecting that Placer Dome will go to Barrick and say, 'Look, give us an extra buck a share and let's make it a friendly deal,'" Smith said.
NO OTHER BIDS
"Placer's board, they've got their advisors out there beating the bushes looking for another bid, and I think they're going to find out in the next week or two there is no other bid," according to Smith.
Many of Placer Dome's operations are complementary to Barrick's, meaning the latter would be able to realize significant synergies and thus is able to make a bid of such magnitude.
Also key is Barrick's partnering with Canadian Goldcorp (TSX: G), which has agreed to pay US$1.35bn for a number of Placer assets, including 40% of the Pueblo Viejo mine development project in the Dominican Republic and a 50% stake in La Coipa in Chile.
Potential synergies for Goldcorp allow the company to pay more for those assets than any other company, meaning its partnership with Barrick "is one of the critical pieces of the whole puzzle," Smith said.
"To me, the only other legitimate bidder would be [US miner] Newmont, because they certainly could get similar synergies in Nevada and Australia," he said.
"I think for Newmont, having Barrick vault ahead of them as the [world's] largest [gold] producer, that is something that I think [Newmont director] Pierre Lassonde would not want to happen unless he absolutely can't avoid it."
But Newmont (NYSE: MEM) could surpass Barrick's post-acquisition output by buying out its partner at the Yanacocha mine in Peru or acquiring the Gabriel mine in Romania, which would be far more efficient than purchasing Placer Dome, Smith said.
The cash component of Barrick's offer amounts to some US$1.2bn, and would be recuperated upon Goldcorp's US$1.35bn payment. The rest of the acquisition would be paid through stock issue.
In addition, Barrick has some US$1.3bn of working capital, so funding will not be an issue, Smith said.
Placer Dome has advised its shareholders not to act on the offer until the board evaluates it and makes recommendations.