Gold Fields circles the wagons (October 27, 2004)

In its latest gambit to derail Harmony Gold‘s (HMY-N) unwanted advances, Gold Fields (GF-N) has asked South Africa’s High Court to declare its smaller rival’s unsolicited takeover bid unlawful, and to block its implementation.

Gold Fields argues that Harmony’s all-stock offer does not comply with the South African Companies Act, as it fails to include a registered prospectus, something Gold Fields asserts makes the offer unlawful and of no legal effect.

Harmony is offering Gold Fields shareholders 1.275 of its own shares for each Gold Field share. The deal includes an early settlement on 34.9% of Gold Fields shares; that portion of the offer closes 30 days after the Oct. 18 launch date, and will be followed immediately thereafter by a compulsory follow-on offer to acquire the remainder of its Gold Fields’ shares.

Gold Fields immediately shot down the bid saying it “significantly undervalues” its assets and “completely disregards the significant value that will be created from the Iamgold transaction.”

In its appeal to the court, the takeover target calls the early settlement portion of Harmony’s offer “an unlawful construct designed to evade the jurisdiction of various regulatory authorities.”

Gold Fields also says the offer is “a notifiable merger for the purposes of the Competition Act,” and contends that the offer cannot lawfully proceed without prior notification to, and approval by, the competition authorities. It has asked the Competitions Tribunal to quash Harmony’s offer.

Harmony counters that the early settlement offer does not require notification to the competition authorities, as its completion would not effect a change of control of Gold Fields. Harmony says only the follow-up offer requires such notification.

Gold Fields has also filed a formal complaint with South Africa’s Securities Regulation Panel (SRP), alleging that Harmony is acting in concert with Russia’s OAO GMK Norilsk Nickel, Gold Fields’ biggest shareholder, with a 20% stake. The SRP will hold a hearing on Friday.

Harmony says its offer was pre-approved by the SRP and reviewed by the United StatesSecurities and Exchange Commission prior to its announcement, and that Gold Fields’ objection is without merit.

Under South African merger regulations, once a party owns 35% of a company, it must make an unconditional offer for the remaining shares. Regulatory approval is also required for any deal that results in a change in control of a company.

Harmony’s plan to initially acquire a 34.9% stake in Gold Fields, coupled with the irrevocable support of Norilsk (and its 20% interest), would give the two a controlling interest that would enable them to block Gold Fields planned $2.1-billion merger with Iamgold (IMG-T). Harmony’s bid is contingent on Gold Fields shareholders’ rejecting the Iamgold transaction; the plan will be put to shareholders on Dec. 7. Harmony’s bid expires on Nov. 26,

Gold Fields says the record date for the Gold Fields American depository receipt holders (who hold about 25% of the company’s shares) to vote on the Iamgold proposal is Oct. 29; the shareholder meeting has yet to be scheduled. Media reports and the Bank of New York had reported that the meeting was slated for Nov. 11. Harmony shareholders are expected to vote on their company’s plan to acquire Gold Fields on Nov. 10.