Podcast: Gold Fields loses bid for Yamana Gold

Andrew Bahlmann, Deal Leaders International CEO, believes Gold Fields would have done well if it got the deal on its terms – but was right not to get into a bidding war.
Moneyweb’s Suren Naidoo speaks to Bahlmann

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SUREN NAIDOO: In our next interview we have Andrew Bahlmann of Deal Leaders talking to us about the big news of the day, [Canadian miner] Yamana Gold. Agnico Eagle Mines, together with Pan American Silver Corp, secured a $4.8 billion cash-and-shares deal to buy the rival Canadian miner, beating JSE-listed miner Gold Fields to the deal.

Andrew, welcome to the show.

ANDREW BAHLMANN: Thanks very much for having me.

SUREN NAIDOO: So what are your thoughts on this? Did Gold Fields lose out? I see their share price is not dramatically different following that announcement.

ANDREW BAHLMANN: It’s an interesting one. I don’t think Gold Fields lost out. I think they demonstrated calculated restraint which the analysts have welcomed. There’s always that risk of kind of going down the rabbit hole and trying to counter, and then start almost offering a value that’s detached from market reality.

Yes, the original offer was not received well by the market, and that had quite an impact on the Gold Fields share price. It’ll be interesting to see how the final votes from the various shareholders go towards the end of this month.

I think outside of value, the benefit of the Pan American offer is really [that] there’s a cash component as well, so it’s not a pure share swap. I don’t know if Gold Fields ‘lost out’; I think if they got the deal on their terms [they] would’ve done well.

I think their move not to get into some sort of bidding war has been the right one for them.

SUREN NAIDOO: Where are Agnico Eagle Mines and Pan American Silver Corp from, and are they a big competitor globally to Gold Fields?

ANDREW BAHLMANN: I don’t know that much about them, to be honest. I think a lot of the anchor players, if you like, are looking to diversify their portfolios from around the world. Pan American is [Canadian] based, so I think if you analyse the market, there are a lot of big players scurrying to try and buy up assets in other new markets or developing markets and, more importantly, deposits that have got a really good runway or lifetime that can be optimised.

So what is quite interesting is that this came out at the eleventh hour.

Typically if there’s a good asset you would kind of have a simultaneous bidding war going on. Gold Fields got there early and, as I mentioned, these guys have come in at the eleventh hour. So it’s quite interesting if you compare the mining sector to traditional M&A [merger and acquisition] businesses in various sectors.

ALSO READ: ‘Ours is the superior transaction’ – Gold Fields on Yamana Gold deal

I think because there’s a scarce resource in these deposits it does create quite an interesting dynamic, but also clearly it shows, in the Yamana example, that guys also aren’t going to overpay.

So quite an interesting dynamic and I want to do a bit more research and kind of understand the backstory of these two bidders. Let’s see how it plays out in the next couple of days.

SUREN NAIDOO: Just refresh our memory here. You say you still need to do research, but what were the basic differences between the [Canadian] offer and the Gold Fields offer?

ANDREW BAHLMANN: First of all, if you look at the instruments, I guess the Gold Fields offer was a straight share swap, so there was no cash involved.

I think when the original offer was made there was a market perception that, based on the current Gold Fields price, they were overpaying for the assets. The irony is then that the dilution of those shares created less value in the offer, obviously dropping it down from around $6 billion to around $4.8 billion.

The latest offer is a combination of shares and cash and I would think shareholders would look at that very favourably; liquidity you can bank on day one. So that gets paid out to shareholders and then you’ve got the variable movement in the share price.

Yes, it’ll be interesting to see how their share prices have reacted to the offer, because I think often, with a listed instrument, it’s such a variable kind of moving target from a valuation perspective. You can’t pin down necessarily a fixed value because it’s based on market sentiment and reactions.

But to compare like with like, you’ve got Gold Fields’s [offer of] shares only, and then you’ve got this latest Pan American offer, which is I think $1 billion in cash and the balance in shares.

It’s a little bit of apples and oranges, and I guess it comes down to where the shareholders of Yamana are going to see maximum value moving forward.

SUREN NAIDOO: Well, part of it is cash there, so I suppose that would’ve been somewhat of an influencing factor.

Just lastly, before you go, Andrew, do you think Gold Fields will look at other acquisition opportunities now and, as a follow up, are there acquisition opportunities globally for them?

ANDREW BAHLMANN: Yes, definitely. I think the sentiment behind this opportunity was the right one and, like anything, when somebody looks at a business you don’t want to have concentration risk either in a geography, a product or service – and, in this situation, limited reserves.

So yes, I would be surprised if they didn’t keep looking. But I think they would need to take stock of the learnings and the post-mortem on what was right and what was wrong with this process, and be careful not to overpay moving forward.

So yes, it’s interesting. I think the market reaction was not against them acquiring, it was just that they didn’t think the premium that was being paid was the right one.

SUREN NAIDOO: Okay. Andrew, we’ll have to leave it there. That was Andrew Bahlmann of Deal Leaders.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.