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Newmont, Barrick End Merger Talks: What Went Wrong?

Disagreements and accusations causes gold mining giants to terminate talks of $13-billion mergerMerger talks between Barrick Gold Corp. (ABX) and Newmon...

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|May 2|magazine9 min read

Disagreements and accusations causes gold mining giants to terminate talks of $13-billion merger

Merger talks between Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM) have collapsed after Barrick accused its American rival of going back on its deal and changing key provisions.

According to Barrick Gold, the two companies had agreed to terms April 8, including economic and governance matters, only to see Newmont renege three key elements of the deal: a Toronto-headquartered company, the composition of the combined company and the roles of the chairman, chief executive officer and lead director.

The Denver-based company said a firm deal hadn’t been reached and blamed Barrick’s co-chairman John Thornton for making a “unilateral declaration” that the talks were over. In a letter to the Barrick board April 25th, Newmont Chairman Vincent Calarco wrote that Thornton had twice told the Nevada-based company their merger talks were “dead.”

“It has become evident to us over the past several weeks that the type of constructive, mutually respectful and partnership-oriented relationship necessary to realize the potential benefits of that combination does not yet exist,” Calarco wrote to Barrick’s board and Thornton.“Our efforts to find consensus have been rejected out of hand repeatedly.”

“None of this suggest that we have the mutual respect or shared values today,” the Newmont letter said. The efforts to reach a consensus with Thornton were “rejected out of hand repeatedly.”

Under the terms of their latest proposal, Barrick would acquire Newmont Mining for about $13-billion, including a 13 percent premium for Newmont shareholders. The deal included chief executive officer Gary Goldberg becoming CEO of the combined entity, Newmont’s Calarco as vice-chariman and lead independent director, and Barrick’s incoming chairman Thornton as executive chairman.

Things went from bad to worse when Barrick founder Peter Munk blasted Newmont’s culture in an interview with the Financial Post last week, saying the firm is “not shareholder friendly.” Munk, who is set to retire on April 30th, will be replaced by Co-Chairman John Thornton.

Insiders to Barrick Gold believed Newmont wanted to downgrade Thornton’s role, giving the Newmont insider too much authority over the combined company.

Although the merger between Barrick and Newmont would have been the biggest deal in the history of the gold mining sector, its failure reveals how a seemingly perfect deal can be ruined by clashing personalities.

By combining their operations, the two companies would have capitalized on $1 billion of cost savings annually. Munk and other insiders still expect the merger to happen one day, shareholders are not holding their breath.

“They’re like two kids in the sandbox,” said John Ing, president and gold analyst at Maison Placements Canada. “The logic of the merger is there, but when you get down to board seats and personalities, it’s a different kettle of fish.”

The gold miners, which would have been called Barrick Newmont  Mining, were gearing up to announce their deal ahead of Newmont’s annual shareholder meeting April 23rd.

The fall out between Barrick Gold and Newmont shows how falling gold prices and egos can ruin a good thing, no matter how much money is at stake.