The stock market climbed on Monday morning, as investors were pleased to hear that President Trump would extend a March 1 deadline in trade negotiations between the U.S. and China without further increases to tariffs. That helped major indexes maintain up their upward momentum, and as of 11:30 a.m. EST, the Dow Jones Industrial Average (DJINDICES: ^DJI) had gained 170 points to 26,202. The S&P 500 (SNPINDEX: ^GSPC) rose 17 points to 2,809, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) climbed 66 points to 7,593.
There was a lot of news concerning mergers, acquisitions, and other strategic corporate moves this morning. Newmont Mining (NYSE: NEM) found itself the target of an unsolicited takeover attempt from rival Barrick Gold (NYSE: GOLD), while General Electric (NYSE: GE) decided to go forward with a sale of its biopharmaceutical business to Danaher (NYSE: DHR).
Barrick Gold shares fell 1% after the gold giant made a $17.8 billion bid for Newmont Mining, whose shares also declined 1%. Under the terms of the deal, Barrick would offer 2.5694 shares of its stock for every Newmont share that shareholders owned.
Image source: Barrick Gold.
Newmont quickly rejected the offer, and unlike in so many hostile takeover situations, there's almost no way one could reasonably criticize Newmont's haste. Given the value of the two stocks, Barrick's bid was substantially less than Newmont Mining's market capitalization. With nearly all takeover bids being made at a premium to the current share price, some found Barrick's action insulting.
Barrick CEO Mark Bristow still praised the potential good from the deal, noting that the merger would "create what is clearly the world's best gold company, with the largest portfolio of tier 1 gold assets and the highest level of free cash flow to drive future growth and support sustainable shareholder returns." Yet for Newmont, the offer comes at an awkward time, because Newmont itself just made a big $10 billion buyout bid for industry peer Goldcorp last month.
No one would have expected Barrick's initial offer to gain much traction, but the real question remains what happens next. If Barrick is serious about its efforts and ups its bid, it could create an interesting situation in the gold industry. With bullion prices having remained stagnant for so long, it's not surprising that major mining companies are looking at consolidation as a way to try to bolster future returns.
GE makes a sale
Meanwhile, shares of General Electric vaulted 8% higher on news that the conglomerate will sell off one of its crown jewels. GE said that it will sell its biopharmaceutical business to Danaher for $21.4 billion, consisting of $21 billion in cash and the assumption of certain GE pension liabilities by Danaher.
For GE, the move has two primary benefits. First, the company intends to use the cash proceeds from the transaction to try to reduce the level of leverage on its balance sheet. With extensive debt, GE had raised concerns among investors that it might run into a liquidity problem, and that had played a substantial role in sending the conglomerate's share price into single digits recently.
The more important benefit from the sale to Danaher is that General Electric has now validated that it's able to make real progress toward an eventual transformation. As CEO Larry Culp pointed out, "A more focused portfolio is the right structure for GE, and we have many options for maximizing shareholder value along the way."
For long-suffering GE investors, the move is just a single step forward in what could be a long journey ahead. General Electric's overall direction has been evident since before Culp became CEO, but execution has proven problematic. There are still big questions for the conglomerate, including what to do with the power and oil services businesses. Yet for now, shareholders seem content that GE is making at least some progress.
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