Randgold Resources takes run at Ashanti (August 18, 2003)

Mid-tier producer Randgold Resources (GOLD-Q) has made the proposed merger between Ashanti Goldfields (ASL-N) and AngloGold (AU-N) a whole lot more interesting by making a merger proposal to Ashanti that jumps the AngloGold bid.

Randgold, which operates the Morila mine in Mali and has a large property portfolio in West Africa, is offering one Randgold Resources share for every two Ashanti shares tendered to the bid. AngloGold’s offer is for 0.26 of an AngloGold share for each share of Ashanti.

The Randgold offer effectively valued Ashanti at a little less than US$1.5 billion. Since that announcement, Randgold shares have fallen US$2.13 to close at US$20.81. Based on closing prices on Aug. 12, Randgold’s offer values Ashanti at US$10.41 per share, or US$1.32 billion, against a bid of just under US$1.2 billion, or US$9.43 per share, from AngloGold.

Ashanti shareholders would hold two-thirds of a combined Ashanti-Randgold Resources company. They would hold about 13% of a much larger merged company under the AngloGold proposal.

Jonathan Best, AngloGold’s chief financial officer, told the Reuters news agency in Johannesburg he doubts the market will see Randgold’s offer as superior. AngloGold has a history of increasing its bids for takeover targets when other offers appear (for example, in the bidding war for Normandy Mining).

Ashanti, whose board had supported the AngloGold bid, confirmed it had received an approach from Randgold Resources and that the two companies were in discussions. Ashanti also stated that the Randgold proposal contains a provision for each company to perform due diligence investigations on the other.

The lockup agreement between Ashanti and Anglo allows the Ashanti board to consider, but not solicit, other offers; if a better offer appears, then Ashanti or the new bidder will be on the hook for a US$15-million breakup fee.

There has been no comment on the new bid from Ashanti’s two major shareholders, Lonmin (LNMIY-O), which indicated last week it would tender its 28% holding to the AngloGold bid, and the government of Ghana, which holds 17% and had taken the AngloGold bid under consideration. The government also holds a single veto share, which it could vote to sink any merger proposal.

Randgold & Exploration (RANGY-Q) holds a 43% interest in Randgold Resources.