Watchdog takes a bite out of Harmony bid (March 14, 2005)

Harmony Gold Mining (HMY-N) will ask South Africa’s Securities Regulation Panel for permission to extend its all-stock takeover offer for bigger rival Gold Fields (GFI-N). The country’s Competition Tribunal recently delayed hearings over the bid until early May.

The Tribunal will hold hearings into the merger proposal May 3-6, and unless Harmony is granted an extension, the company’s offer will lapse on March 18.

Once the hearings conclude, the tribunal is required by law to issue its decision within 10 business days; after it does so, Harmony’s offer would need to remain open for at least 21 days.

The hearing schedule also means Harmony’s Russian-based backer, Norilsk Nickel, which has a 20% interest in Gold Fields, would be able to withdraw its support pledged under an irrevocable agreement that expires on May 20. Harmony CEO Bernard Swanepoel says his company will approach Norilsk about extending its support but that no assurances can be made.

The tribunal says the hearing was scheduled for May in order to allow time for preliminary hearings and for the opposing parties to exchange documents.

Earlier this month, the tribunal’s sister body, the Competition Commission, recommended approval of Harmony’s bid, but only after imposing a 2-year ban on job cuts among non-managerial workers, and a limit to job cuts at the managerial level.

“We are surprised and disappointed the tribunal cannot see a way to hold these hearings earlier,” says Swanepoel. “Many Gold Fields shareholders will be unwilling to tender into the subsequent offer with this remaining condition hanging over it.”

Late last year, Harmony acquired 11.8% of Gold Fields’ shares under the early-settlement portion of its takeover bid; it needs to lock up around another 18.5% for Norilsk to tender its shares to the follow-on portion of its offer for the balance of Gold Fields’ shares.

Originally launched in October 2004, Harmony’s bid remains at 1.275 of its own shares for each Gold Fields share. Based on each company’s closing share price in New York on Feb. 25, the ratio implies a value of US$10.93 for each share of Gold Fields, or US$1.22 below Gold Field’s closing share price of US$12.15.