Billion dollar Christmas bonus

With investors less than eager to tender to its original takeover offer, Barrick Gold (ABX-T, ABX-N) has stuffed a bit more green into Placer Dome‘s (PDG-T, PDG-N) Christmas stocking.

That added green amounts to around US$116 million in cash, and is bolstered by some 30 million additional shares in Canada’s biggest gold producer.

Under the sweetened bid, Placer shareholders are offered US$22.50 in cash or 0.8269 of a Barrick share plus a nickel for each Placer share tendered. The cash portion of the bid is capped at US$1.34 billion, while the scrip is limited to 333 million shares. In all, the bid is valued at US$10.4 billion on a fully diluted basis.

On a fully prorated basis, the offer amounts to US$2.91 per share in cash and 0.7216 of Barrick share.

“It’s very much about creating an enterprise that can be successful in a global industry with a number of challenges,” said Barrick chief executive Greg Wilkins during a conference call with analysts after the announcement. “You need to have a company that has the strength, breadth and scale to be able to effectively capitalize on the opportunities.

“It really consolidates an unrivalled suite of projects and prospective exploration areas that will give us a growth profile well into the future.”

Wilkins says the deal is immediately accretive to Barrick shareholders on a net asset value basis, and will begin to be accretive on an earnings-per-share and cash flow basis, beginning in 2007.

The revised offer also includes a larger cash contribution from Goldcorp (G-t, GG-N), which will chip in US$1.485 billion, up from the previous US$1.35 billion. In return, Goldcorp will pick up Placer’s major Canadian assets, including the Campbell mine, adjacent to its flagship Red Lake gold mine in northwestern Ontario. Placer recently announced a downdip extension of Red Lake’s High Grade zone onto Campbell.

“We believe that the increased purchase price is justified as a result of recent increases in gold prices, the exploration success at Red Lake and additional synergies and tax efficiencies that we expect to arise from a friendly transaction,” said Goldcorp chief executive Ian Telfer in a statement.

Barrick’s original offer in October included US$20.50 a share in cash or 0.7518 of a Barrick share plus 5 a share, with the cash component limited to US$1.224 billion, and shares to 303 million. Placer dismissed the offer as inadequate and opportunistic, and urged shareholders to shun it.

That advice was heeded, as the new deal comes just a day after Barrick said that only 2.6 million Placer shares had been tendered to its existing offer, good for less than 1% of Placer’s outstanding share count.

Placer’s board is fully behind the new bid, and Barrick has agreed to install three of Placer’s current directors on the enlarged company’s board.

Placer chief executive Peter Tomsett says his company now understands Barrick’s perspective on risk issues relating to its hedge book and Pascua-Lama project on the Argentine-Chilean border — risks Placer had raised in its attempt to fend off Barrick’s original bid.

Tomsett says his board and advisors have taken the issues into account in making their recommendation of Barrick’s bid. He says the new deal would see Placer shareholders end up owning 37.4% of the combined entity, up from the approximate 35% stake implied by the original offer.

Barrick’s latest offer is conditional on at least two-thirds of Placer’s shares being tendered; it also needs approval by South Africa’s Competition Commission. Wilkins says the country’s Competition Tribunal has already advised the Commission to grant the go-ahead. A hearing is slated for Jan. 11. Regulators in Canada, the United States, Germany, Switzerland, and Australia recently OK’d Barrick’s original offer. The new offer sees the deadline extended by three days to Jan. 19.

Under the new agreement, Placer can consider “superior” competing bids, with Barrick able to match any such offers. Barrick would also be paid a break fee of US$259.7 million if its offer fails, under certain circumstances.

After being halted from trading in Toronto earlier in the day on Dec. 22, shares in Placer were off 67, or 2.5%, at $25.73 by mid-afternoon; Barrick was 63 lower at $31.12. For its part, Goldcorp was trading 71, or 3.1%, better at $23.86.