Everything you need to know about how Wall Street feels about a merger deal can be seen when that deal goes south. That’s what happened in today’s trading following news that the precious metals mining deal between Newmont Mining (NEM) and Barrick Gold (ABX) went bust.
The merger between Newmont Mining and Barrick — two behemoths in the gold mining sector — was supposed to be announced as soon as this week. Instead, this weekend, Wall Street found out that merger talks broke down a few days ago.
However, according to sources close to the deal, the reasons for the failure to reach an agreement were “amid minor disagreements.”
Translation: We could see the deal gain life again.
The reaction on the trading floor early Monday caused NEM stock to surge more than 6%, so apparently the smart money likes the news. Conversely, if you own ABX stock, you’re not as pleased today — shares sank 3% early in the session in reaction to the shelved (at least temporarily) deal.
Newmont Mining & Barrick Gold: The Details
As for the terms of the mega-mining deal, the companies had planned to do an all-stock merger where Barrick Gold would have offered Newmont Mining shareholders a premium of 13% over the average share price of NEM stock during the past 20 trading sessions. That’s not a bad deal for Newmont Mining shareholders, but it’s an even better deal if the merger talks are revived anytime soon, as the jump in the shares today will skew that average price in NEM stock owners’ favor.
Now, when a deal like this falls apart, one has to ponder what the problem really is with the participants. And like so many things in life, the setback seems like one of personalities, and not the logical merits of a deal.
According to news reports, the contested issue is the “spin-out of some of the assets from the combined entity.” Like in any deal, both sides want to jock for just a little bit more for themselves and their respective shareholders. In this case, the ABX chieftains want to protect their investment, as do the tribal leaders at the Newmont Mining helm.
Interestingly, this isn’t the only time that deal talks between the mining giants have hit an empty vein. In fact, this is actually the third time that the companies have seriously considered a merger within the past seven years.
Yet I suspect that if Newmont Mining CEO Gary Goldberg can eventually work out the deal’s kinks with Barrick CEO Jamie Sokalsky, and his likely successor John Thornton, there will finally be a mega-mining merger that will be good for both companies in terms of lower costs, greater economies of scale, and more market share. The deal would also be good for both companies’ shareholders.
If you own NEM stock or ABX stock, let’s hope the personalities can iron out the wrinkles and get this deal done.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.