Lihir Gold Ltd. (LGL.AU) on Thursday rejected a A$9.2 billion
takeover offer from rival gold miner Newcrest Mining Ltd. (NCM.AU),
which it said didn't reflect the value of the company's assets or
offer a sufficient control premium.
Port Moresby-based Lihir also announced the appointment of
Graeme Hunt as its new chief executive. The former head of BHP
Billiton Ltd.'s (BHP.AU) uranium business will walk straight into
the middle of a corporate tussle between the two biggest gold
miners listed on the Australian exchange.
A soaring gold price has seen both Newcrest and Lihir tipped as
potential takeover targets for offshore gold majors who are looking
to replace reserves, and analysts said Barrick Gold Corp. (ABX),
Newmont Mining Corp. (NEM) and Anglo American PLC (AAL.LN) were
among those who could potentially intervene in the takeover
tussle.
Lihir said the takeover offer was received on March 29 and was
pitched at one Newcrest share for every nine Lihir shares plus 22.5
Australian cents cash per Lihir share, less any interim dividend
declared for the first half of 2010.
Based on Newcrest's closing share price Wednesday, the offer
values Lihir shares at A$3.87 per share and the company at about
A$9.2 billion.
The takeover target's shares closed Wednesday at A$3.03, giving
it a market capitalization of A$7.2 billion, but had surged 33% to
A$4.03 as of 0432 GMT Thursday, while Newcrest shares were down
1.3% to A$33.26 in the wake of the bid.
Lihir Chairman Ross Garnaut said the board had rejected an offer
that was "substantially inadequate", undervalued the company's
assets and future growth potential and didn't offer a sufficient
premium for control.
Garnaut said there was strategic merit in a combination with
Newcrest, which would provide geographical diversification and
lower the combined entities' cost of capital, but that the
shares-and-cash offer made by Newcrest on Monday was too low.
"There is strategic value in a combination of Lihir and
Newcrest, we recognized that in our analysis, and the question is
what's fair value for Lihir shareholders, and it just wasn't
there," he told analysts on a conference call.
Newcrest Chief Executive Ian Smith said the company is willing
to continue discussions with Lihir but is standing by its current
offer, which he said is "full and fair" and represents a 32%
premium based on the two companies' average share prices over the
past three months.
It also represents a 12% increase on an initial proposal
Newcrest put to Lihir on Feb. 15, he said.
Smith said he was surprised by Lihir's response to the offer and
he believed Lihir didn't fully appreciate the value of the Newcrest
assets that underpin the share component of the bid.
"We found the stance this morning a little surprising," he told
analysts on a conference call.
"Over the next week and a half, we will be engaging with our
major shareholders, explaining the situation, explaining our
position, and out of that I am sure we will determine the next
steps."
Smith noted that there is more than 50% crossover between the
shareholders of Newcrest and Lihir.
He said the takeover bid, which would deliver at least A$85
million in annual synergies, is "compelling but not vital" for
Newcrest, which has attractive growth options on a stand-alone
basis.
In return for being granted access to carry out limited due
diligence, Newcrest has signed a standstill agreement that will
preclude them from making a hostile offer for Lihir for nine months
but won't prevent them from coming back with a higher friendly
offer.
Smith wouldn't be drawn on whether the miner will consider
upping its bid, but said a complete bid can only be tabled once
Newcrest has been given site access at the Lihir Island mine in
Papua New Guinea to undertake detailed due diligence.
Citi analysts say Newcrest is more likely to wait for nine
months and go hostile with its current offer than to make a higher
friendly bid.
"Given the already typical psychological premium of (about) 30%,
we think there is a higher probability that Newcrest will wait and
go hostile and give Lihir shareholders the option," Citi said.
Austock analyst Anastasia Kassianos said the offer looks
attractive and she believes Lihir's board should have accepted.
"It is great for their shareholders to have the Newcrest paper
as well as the cash--this is clearly something they shouldn't have
said no to and the market is saying they should have taken it," she
said.
However, Craig Campbell of Morgan Stanley says it isn't
surprising that Lihir knocked back the offer.
"The first offer is probably never the best," he said.
Garnaut said Lihir was undervalued in the marketplace and the
company is taking steps to rebuild market confidence and correct
the valuation shortfall, including appointing its new chief
executive.
Former chief executive Arthur Hood made a shock early exit from
Lihir in January in the wake of investor anger over losses incurred
in the acquisition of the Ballarat mine in Australia's Victoria
state, a purchase Garnaut said Thursday was a "big mistake" that
had damaged perceptions of the company.
Incoming chief executive Hunt, who headed the key iron ore,
aluminum and uranium divisions of BHP in a 34-year career with the
mining giant, said one of his focuses will be on better
communicating the value of Lihir's assets and its growth potential
to the market.
In a presentation, Newcrest said a combination with Lihir would
create a significant gold company that would compare favourably to
any of the major producers, with a market capitalization of A$24.5
billion, annual revenue of A$3.9 billion and production growth of
6% a year that would boost its annual output to 3.75 million ounces
by 2014.
Newcrest's bid for Lihir adds momentum to a fresh wave of merger
and acquisition activity in the Australian mining industry fueled
by resurgent commodity prices, with Peabody Energy Corp. (BTU) on
Wednesday making a A$3.3 billion bid for Macarthur Coal Ltd.
(MCC.AU).
-By Alex Wilson, Dow Jones Newswires: 613-9292-2094;
alex.wilson@dowjones.com
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