Watchdog takes a bite out of Harmony bid (February 28, 2005)

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

The Tribunal will hold hearings into the merger proposal from May 3 to May 6, which means that Harmony’s offer will lapse on March 18, unless an extension is granted. Once the hearings wrap up, the Tribunal is required by law to issue its decision within 10 business days; thereafter, Harmony’s offer would need to remain open for at least 21 days.

The hearing schedule also means that Harmony’s Russian-based backer Norilsk Nickel, with a 20% stake in Gold Fields, would be able to withdraw its support pledged under an irrevocable agreement that expires on May 20. Harmony CEO Bernard Swanepoel said his company would approach Norilsk about an extension of its support, but that no assurances could be made.

The Tribunal said the hearing was scheduled for May in order to allow time for preliminary hearings, and to allow 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 two-year ban on job cuts among blue collar workers, and limiting job cuts to 1,500 at the managerial or supervisory level.

“Obviously we are surprised and disappointed that the Tribunal cannot see a way to hold these hearings earlier. Many Gold Fields shareholders will be unwilling to tender into the subsequent offer with this remaining condition hanging over it,” said Swanepoel in a prepared statement.

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 last Oct. 18, 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 off Gold Field’s closing share price of US$12.15.