Iamgold jilted, again (December 13, 2004)

After weeks of legal challenges and verbal sniping, shareholders of Gold Fields (GFI-N) have finally had their say, narrowly rejecting their company’s plan to merge its international assets with those of Iamgold (IMG-T).

In the end, 48.2% of the votes cast at the special shareholders meeting were in favour of the plan, with 51.4% against; a simple majority was needed for a win. The votes cast in favour of the deal included a 12% stake represented by a proxy for the un-voted portion of Gold Fields’ American depository shares (ADSs).

Gold Fields’ ADSs had become the crux of late legal challenges in the days leading up to the vote. Harmony argued that Gold Fields should not be able to vote the shares, as that would allow the company to force through its plan in the face of substantial shareholder opposition.

Missing from the vote tally were the 11.8% of Gold Fields’ shares acquired under Harmony Gold‘s (HMY-N) early-settlement offer; an earlier court ruling froze the voting rights of those shares, concluding that Harmony’s 2-part bid actually qualifies as a notifiable merger for competition purposes, and could not proceed until formal approval by competition authorities.

The nays were led by Russia’s Norilsk Nickel, Gold Fields’ largest shareholder, with just more than a 20% stake. The outcome of the vote was delayed by several hours, after an unidentified institutional shareholder changed its mind late and voted against the Iamgold deal. Gold Fields CEO Ian Cockerill said that decision ended up being important.

“This is a disappointing result, but we respect the decision of our shareholders,” said Cockerill in a prepared statement. “Today’s vote against Iamgold is not a vote for the Harmony offer.”

Cockerill said the company’s board would meet over the next few days to consider its options.

Meanwhile, he continued to urge his shareholders not to tender their shares to Harmony’s follow-on offer.

Harmony CEO Bernard Swanepoel says that now that Gold Fields shareholders have had their say, Gold Fields should abandon its “ill-conceived defence,” and begin negotiations aimed at establishing a friendly deal between the two.

Many market watchers expect that such an outcome is unlikely; rather, they foresee Gold Fields unveiling its own “white knight” or a restructuring plan that would see its foreign assets sold off.

Gold Fields’ final loss comes after a long and increasingly acrimonious battle that seemed to be turning in its favour in the days leading up to the vote; the company had scored several legal victories, and managed to appease some investors by trimming its cash contribution to the Iamgold deal by US$200 million to around US$150 million. The deal’s other terms remained unchanged, and would have seen Gold Fields end up with 70% of the enlarged Gold Fields International (T.N.M., Aug. 23-29/04).

The rejection of the Iamgold plan means Harmony will continue with its plan to acquire the balance of Gold Fields’ shares; it has already tied up Norilsk’s 20%. Harmony’s bid stands at 1.275 of its own shares for each Gold Fields share tendered. Gold Fields has steadfastly maintained that the offer significantly undervalues its assets. The offer expires in February but can be extended.

The exchange ratio under Harmony’s offer implies a value of US$13.08 for each Gold Fields share, based on Harmony’s closing share price in New York on Dec. 6; Gold Fields shares ended at US$13.70, with the market expecting an increased offer from Harmony. Harmony says it doesn’t believe it needs to boost its offer but has reserved the right to do so. At its launch in mid-October, Harmony’s offer represented a 29% premium.

Meanwhile, Iamgold CEO Joseph Conway says he is disappointed the Gold Fields deal was rejected, especially since more than 70% of his company’s shareholders had voted in favour of Gold Fields’ proposal.

The latest failed merger is Iamgold’s second this year; In March, Iamgold announced its intentions to merge with Vancouver-based Wheaton River Minerals (WRM-T). Shareholders voted down that deal in July. Soon thereafter, Iamgold managed to fend off a hostile bid from Denver-based Golden Star Resources (GSC-T), with the help of Gold Fields.

Conway takes some solace in the fact that at least there is now a clear outcome, freeing Iamgold to pursue other growth opportunities, which had been “placed on the back burner these past several months while the various corporate transactions were pending.”

Shares in Iamgold were off 39, or about 4.5%, at $8.50 in morning trading in Toronto following the news on Dec. 7; Gold Fields was off a quarter at US$13.45, while Harmony was US40 lower at US$9.86 in New York.