Dissident Gold Fields Ltd. GFI-N shareholder RWC Partners Ltd. (Redwheel) is doubling down on its opposition to Gold Fields’ acquisition of Yamana Gold Inc., YRI-T saying the South African miner should walk away from the deal and put the funds instead toward a major share buyback.
Johannesburg-based Gold Fields offered to buy Toronto-based Yamana Gold in an all-stock deal that was worth US$6.7-billion when it was announced in May, but in the interim the value has plummeted by close to 40 per cent owing to a severe sell-off in Gold Fields’ shares.
British investment manager Redwheel, a major holder of Gold Fields’ shares, in June denounced the deal as far too expensive, given the 42-per-cent premium that Gold Fields was offering.
On Thursday, Redwheel reiterated its opposition to the deal on valuation grounds, and is now calling on Gold Fields to buy back US$1.5-billion in shares, instead of chasing an expensive acquisition of Yamana.
“Given the sharp correction in Gold Fields’ share price, we strongly believe that Gold Fields’ current and future cash flow would be better used to buy back its own shares rather than pursuing large, dilutive M&A,” Redwheel said in a public letter.
“We do not believe that this would threaten the company’s strong balance sheet, nor would it impair the company’s future growth. Conversely, we believe a share buyback and increased leverage would optimize the company’s capital structure.”
Redwheel isn’t the only large Gold Fields investor opposed to the deal. New York-based fund manager Joe Foster told The Globe and Mail last week that the premium deal was “poorly structured,” received a “horrible market reaction” and the rationale defied logic. Mr. Foster heads up the mining team at Van Eck, the biggest holder of Gold Fields’ U.S.-listed shares.
About 10 days ago, Gold Fields chief executive officer Chris Griffith said in a media call that he hoped some of its large shareholders would go public and say they were in favour of the deal, but so far that has not happened. The Globe reached out to Blackrock Investment Management, which is the miner’s third-biggest shareholder, but the big fund manager declined comment.
On Thursday, Mr. Griffith said in an operational update that the company was making “good progress” on the transaction, without giving specifics.
Shareholders at both miners are scheduled to vote on the offer in just over two weeks, with the outcome far from certain. Yamana shareholders vote Nov. 21, with at two-thirds of votes cast needed for it to pass. Gold Fields investors weigh in the day after, and the threshold for success is 75 per cent of votes cast.
Yamana’s shares are trading at a discount of about 7 per cent to the price being offered by Gold Fields under the share-exchange ratio, a spread that has widened in recent days, suggesting even greater uncertainty over the deal.
Van Eck is also Yamana’s biggest shareholder, and Mr. Foster, who has a big say in how the New York investment firm votes its shares, opposes Yamana’s plans to be acquired. He believes the company can perform a lot better by remaining as a stand-alone.