Gold Fields scores a late blow

South Africa’s Competition Appeal Court has ruled that Harmony Gold (HMY-N) cannot use any Gold Fields (GFI-N) shares acquired under its early settlement offer to vote on the latter company’s plan to merge its international assets with those of Iamgold (IMG-T).

In its ruling, handed down on the final day of the first phase of Harmony’s two-pronged takeover bid, the court found that Harmony’s bid qualifies as a notifiable merger for competition purposes and may not proceed until its is formally approved by competition authorities.

Harmony’s offer, aimed at initially acquiring 34.9% of Gold Fields shares (just shy of a controlling interest under South African law), stands at 1.275 of its own shares for each Gold Fields share. The bid includes an automatic follow-on offer for the balance of the target’s shares, provided Gold Fields’ planned deal with Iamgold is nixed by Gold Fields shareholders at a vote slated for Dec. 7. Harmony had planned to use any acquired shares to vote against the plan, and has the backing of Russia’s Norilsk Nickel, which owns a 20% stake in Gold Fields.

"We have been vindicated. Our objective from the outset has been to protect our shareholders’ interests," said Gold Fields CEO Ian Cockerill in a prepared statement. "This ruling upholds our view that the nature of Harmony’s hostile two-stage offer was unfair and designed to evade proper regulatory scrutiny and disenfranchise the majority of our shareholders."

"This is a victory for shareholder democracy. It is also a victory for South Africa and proof of the strength of its regulatory environment. We urge shareholders to reject the Harmony offer; keep their options open and not tender their shares," he added.

Harmony is considering an appeal of the judgment.

Meanwhile, the Supreme Court of Appeal has dismissed Gold Fields’ petition that it declare Harmony’s bid unlawful and block its implementation.

"Yet another of Gold Fields’ legal challenges to our offers has been decided in our favour," said Harmony chief executive Bernard Swanepoel. "Gold Fields has expended significant time and money on these frivolous legal and regulatory challenges in its attempts to divert shareholders’ attention from what Harmony believes are full and fair offers." We urge Gold Fields’ shareholders to accept our offer."

The exchange ratio under Harmony’s offer implies a value of US$13.46 for each Gold Fields share, based on Harmony’s closing share price in New York on Nov. 25; Gold Fields shares ended at US$14.27, with the market expecting an increased offer from Harmony. The case for that higher bid recently got a boost when Gold Fields’ independent financial advisor ABSA Bank concluded that Harmony’s offer is materially unfair to Gold Fields shareholders.

News of Gold Fields’ successful appeal sent shares in Iamgold 46, or more than 5%, higher to $9.11 in early trading in Toronto on Nov. 26.

Later on Friday, the New York Stock Exchange halted trading in Gold Fields’ shares; the halt order will remain in place until Harmony provides the exchange with preliminary figures on the number of Gold Fields shares tendered to its early acceptance offer. Harmony says it will release the results as soon as possible.Gold Fields shares continue to trade on all other markets on which it is listed.