3 Reasons Why Barrick’s Merger Attempt Failed

In the end, the hurdles were just too big to jump over.

| More on:
The Motley Fool

On Monday morning, Barrick Gold (TSX: ABX)(NYSE: ABX) announced that merger talks with Newmont Mining (NYSE: NEM) have ended. This is a major disappointment for Barrick’s management – the company’s press release stated that, “Barrick believes the interests of shareholders are best served through the completion of this business combination” but that Newmont’s board disagreed.

There were numerous reasons why a merger made sense, including a potential $1 billion in cost savings. So why did the merger discussions fail? Here are three reasons.

1. A difference in culture

It is well-known that Barrick is a very aggressive company by nature. Throughout its history, it has not shied away from big acquisitions in its effort to grow. Of course this has not always been to the benefit of its shareholders.

Meanwhile Newmont has a far more conservative culture; unlike Barrick, it has not engaged in the same level of empire building. So it should surprise no one that Newmont was the one to get cold feet.

2. Friction during the negotiations

One fact will always remain true about mergers: they are very difficult to implement. Especially when combining two cultures that don’t normally think alike, like Barrick’s and Newmont’s. A lot of the cost savings would have to come from job cuts, which of course would only lead to increased tensions.

So it certainly did not help when Barrick outgoing Chairman Peter Munk openly criticized Newmont, claiming that the company is “not shareholder friendly.” With all the criticism that Barrick has received over the past few years, this was not good choice of words by Mr. Munk. And even worse, it was very antagonizing towards Newmont’s board, right when the two companies were negotiating a partnership.

In the end, one can understand why Newmont concluded that a merger isn’t worth the trouble.

3. Not enough of a premium

The offer on the table from Barrick would have given Newmont’s shareholders a 13% premium. This was a fair number, considering that Newmont would have made up such a large part of the combined company; one could almost have called it a “merger of equals”. But given the cultural differences between the companies, there wasn’t enough reward to compensate for the risk.

On that note, people are now wondering whether Barrick will make a hostile bid for Newmont. But of course this will likely require a steep premium. And for such a big target, Barrick should be really careful before making a big bid.

Foolish bottom line

It seems that Newmont’s shareholders are just as disappointed as Barrick’s management; the stock is down about 6% in early trading. But on the bright side, Newmont knows it will not have to deal with a very messy integration — unless Barrick is willing to make a sky-high offer.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »