Key Takeaways
- Gold Fields shares fell about 12% on Monday after the company confirmed Northern Star Resources’ board rejected its takeover proposal.
- The deal would cost up to A$10.4 billion in cash and 447 million new Gold Fields shares, handing Northern Star holders about 33% of Gold Fields.
- Gold Fields estimates $4-5 billion in synergies, but it calls those estimates preliminary and says they were made without due diligence.
- The next question is whether Gold Fields raises its bid, since the offer is only a 14% premium to Northern Star’s Friday close.
Gold Fields (GFI) is down about 12% on Monday (shares currently trading at about [$35]) after confirming it tried to buy rival Northern Star Resources (NST)…and got turned down.
In a filing before the open, CEO Mike Fraser made the pitch: “We see this combination as creating a stronger platform that can deliver value sooner.”
Investors’ response? Sell the buyer.
What exactly happened
Gold Fields says it confidentially sent the proposal on Sept. 13 after six months of talks “with limited engagement.” According to Gold Fields, Northern Star’s board replied on Sept. 24 that “it was not appropriate to engage in further discussions at this time.”
The terms:
- 0.3125 Gold Fields shares plus A$7.25 in cash per Northern Star share, for an implied A$27.00 per share price
- Up to A$10.4 billion in cash and up to 447 million new Gold Fields shares
- Northern Star holders would own about 33% of Gold Fields
- A 14% premium to Northern Star’s Friday close
The price tag
Here’s the thing: when a company pays in stock, its current shareholders end up owning a smaller slice of a bigger company. In this deal, a third of Gold Fields would go to Northern Star holders, on top of the cash.
Gold Fields’ answer is $4-5 billion in estimated synergies from combining neighboring operations. (Together the two companies would own eight of Australia’s top 20 gold mines, all within about 280 km of each other.) Gold Fields also plans at least US$4.0 billion in asset sales after the deal closes.
Gold Fields itself calls those synergy estimates “preliminary only,” made “without due diligence,” but I see no reason why those wouldn’t be in the ballpark of correct.
What’s next
Fraser says Gold Fields remains “open to constructive dialogue,” but will “remain disciplined and prudent.” That leaves three options: raise the bid, go hostile and take the offer directly to Northern Star’s shareholders, or walk away.
The case for a bump: the offer is only a 14% premium to Friday’s close, and the activist fund Elliott is already pushing for value at Northern Star. (Northern Star’s shares jumped 14% the day Elliott published its presentation in June.)
The catch is that up to A$10.4 billion in cash has to come from somewhere. Gold Fields says the asset sales would “assist deleveraging,” and it’s targeting net debt under 1.0x EBITDA after the deal. Management has been making quite a bit of progress on deleveraging over the last few quarters (this is in USD by the way):
…so obviously I’m hoping that continues regardless of what happens in these negotiations.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
