Lihir rebuff stuns Newcrest MATHEW MURPHY April 2, 2010
AUSTRALIA'S biggest goldminer, Newcrest Mining, will seek the views of its largest shareholders on whether its $9.2 billion bid for Lihir Gold represents full and fair value.
The move comes after Lihir rejected Newcrest's advance and froze it out of making another bid for the rest of the year.
While Lihir has long been considered a takeover target, the company surprised the market, and Newcrest, when it announced yesterday that despite the strategic merits of a merger, it felt Newcrest's $3.87-a-share offer was a low-ball bid.
Under the deal, shareholders would receive one Newcrest share for every nine Lihir shares, plus 22.5 cash per Lihir share. Lihir shares soared $1.01 to $4.04 while Newcrest gained 96 to $33.78.
Newcrest made an approach to Lihir on February 15 that allowed it limited due diligence before Newcrest made the $9.2 billion offer on Monday. To get access to Lihir's financial information, Newcrest signed an undertaking that, if it was rebuffed, it would be unable to buy Lihir shares or launch a hostile offer for nine months.
Newcrest finance director Greg Robinson said the company had believed it was in a continuing dialogue with Lihir and was stunned to see the rejection of its offer announced to the market.
''We had some specific high-level issues we wanted to discuss around the Lihir Island asset only,'' he said. ''We signed a confidentiality agreement with them on that basis. We then came back with our offer on Monday and their response to that offer was not a discussion but a public release.''
Newcrest chief executive Ian Smith said he felt the offer was a fair one that would create a $24.5 billion company with 100 million ounces of combined gold reserves and 200 million ounces of gold-equivalent resources. He said short-term earnings synergies would save $85 million a year.
There is little overlap in terms of assets. Lihir is a 1.1 million-ounce gold producer, with projects at Lihir Island, off Papua New Guinea, and the Bonikro goldmine in Ivory Coast, Africa. Newcrest produces 1.5 million ounces of gold a year, with operations including Cadia Valley in New South Wales and developments such as Hidden Valley in PNG. ''We are going to keep the offer open and over the next week to week and a half and we will get in contact with our shareholders,'' Mr Smith said.
''The interesting thing with these two companies is we have over 50 per cent common ownership and our top three shareholders are within their top four shareholders and constitute over 30 per cent of each company. We will be seeking the opinion of those shareholders and will determine what our next steps are from there.''
Asset manager BlackRock holds 14 per cent of Newcrest and 4.8 per cent in Lihir.
US pension fund Fidelity has 10 per cent of Newcrest and 2.5 per cent of Lihir, while Commonwealth Bank owns 9 per cent of Newcrest and is Lihir's largest shareholder with 8.8 per cent.
Lihir plans to chart its own course without Newcrest.
The company announced that Graeme Hunt, former president of BHP Billiton's iron ore, aluminium and uranium divisions, would become chief executive immediately.
The role was vacated in January by Arthur Hood, who took the fall for the disastrous $US409 million ($A446.3 million) write-down and subsequent sale of the Ballarat goldmine.
Chairman Ross Garnaut said Lihir believed the market had long undervalued it, partly due to the Ballarat debacle.
''Let's not run away from it, we made a big mistake at Ballarat,'' he said. ''It is inevitable, I think, that the overhang of that will be of some significance, but our new leadership will be explaining to the market the real value of Lihir.''
Professor Garnaut said Lihir's real value was somewhere above $3.87 a share.
''The Lihir board felt the Newcrest offer undervalued Lihir, both based on its existing business and in terms of the potential value the company expects to deliver to shareholders,'' he said. ''It also did not include a significant premium for control.''
RBS Morgans said it believed Newcrest would make a better offer rather than wait nine months to make a hostile bid.
''In our view, Newcrest could increase the offer,'' RBS said. ''Valuation doesn't look stretched - that is, there is more room for a higher offer.
''It is possible that one of the other gold majors could come in with a counter-bid. However, we believe the offshore tailing disposal at Lihir Island could be a turnoff. Lihir dump their tailing into the ocean, and despite it being in a volcanic region, there may be longer-term environmental concerns.''
Michael Slifirski, at Credit Suisse, said Newcrest's superior growth profile over the next two to three years might mean the offer was premature.
''Perhaps there have been others circling around Lihir and Newcrest has been forced to reveal its intention earlier than it otherwise would have,'' he said.
