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The lessons of war Posted: Tue, 12 Jul 2005 [miningmx.com] -- WHAT would be the durable impression of Harmony Gold’s seven-month bid for Gold Fields? For some it’s the value destruction and wasted time. Both companies suffered a reverse of strategy and plummeting share prices. (Given the behaviour of the rand, which only weakened just as Harmony’s bid ended, share price declines would have been likely in any event). Certainly, lessons were learned. And owing to the sheer attrition of the conflict – and acrimony at times – everybody got to know themselves a bit better. Gold Fields CEO Ian Cockerill will never again act so tritely with a major shareholder (Norilsk Nickel). In a rare moment of failure, Bernard Swanepoel, Harmony CEO, hit his canny head in public. Though he claims it’s not the first time that Harmony’s been forced to step back from a major investment, it’ll be the one instance everyone remembers. Meanwhile, South Africa’s regulators were like Keystone Cops on an autobahn, completing circles on two wheels while life rushed by. Even the press emerged from behind the sandbags battered. It’s always best to quote a source by name; it became burningly important to do so during the Gold Fields-Harmony takeover. That was partly because the “news flow” was being vigorously worked from behind the scenes by both sides. When Swanepoel tweaked noses – he observed that mining journalists watched cricket matches from Gold Fields’ corporate hospitality suite at Wanderers stadium – the press reaction was outrage. So what’s the outcome? Failing to clinch Gold Fields was a major blow – to ego, strategy and company for Swanepoel. It also came at a time when the rand was playing havoc, with the company’s mines contributing towards the suspicion that the Harmony Way franchise was in terminal decline. But it’s not, says Swanepoel. He believes there are positives to take home. Says Swanepoel: “We could have won Gold Fields if we’d lifted the offer to 1,40 or 1,45 [Harmony shares for every Gold Fields share]. But what we showed is that Harmony is value conscious, which is healthy for future transactions. Some shareholders like acquisition companies but they can lose sleep over what they’ll do next.”
In a strangely conciliatory mood, Cockerill says that he couldn’t blame Swanepoel for the takeover. He was, after all, acting in shareholders’ interests.
That’s quite an acknowledgement; but one isn’t sure that all Harmony shareholders will agree.
Allan Gray, a SA fund manager that owns around 13% of Harmony, was to some extent an unwilling participant – certainly one of the shareholders that would have lost sleep if Harmony had lifted its offer for Gold Fields. There may yet be hell to pay for it.
Even African Rainbow Minerals, a 16%
shareholder in Harmony, expressed its dissatisfaction with a possible increase in the bid, notwithstanding its initial support of it.
Understandably, there are now questions being asked regarding Swanepoel’s tenure as chief at Harmony. “Apart from the 10 or so individuals, most are supportive of Harmony and what it’s trying to do,” Swanepoel insists. “We aren’t driven by diversification away from the rand, but at the same time 90% of our eggs are in one basket.”
Swanepoel says of the group’s SA focus. “We have one of the best growth profiles in the industry, with a further 2,5m oz/year coming on stream by 2009.” About 1,2m oz are replacement ounces; the rest is growth. “We’ve been set back to 2,9m oz/year of production, but we’ll be at 4m oz/year within a few years.”
Says Cockerill: “We need to reflect on what went wrong and how we need to avoid it again,” referring to Gold Fields’ former relations with Norilsk Nickel. He was guilty of underestimating
the importance of keeping major shareholders on board.
Cockerill handed Swanepoel the opportunity of a bid soon after announcing the terms of a plan to reverse Gold Fields into IamGold Corporation without Norilsk’s support.
Swanepoel also shot himself in the foot. Advice to structure his takeover for Gold Fields in two stages – the first aimed at cleverly capitalising on the likely participation of traders – proved flawed. Not only did the two-stage bid drag out the affair way beyond expectations, it was also judged illegal. Seven months after initiating the bid, the High Court ruled the bid a single motion, effectively rubbing out the last four to five months of activity.
Business being business, matters are now back on an even keel.
Cockerill says: “We’ve been proactive with Norilsk. The relationship with Norilsk is good and they want to participate in the listed company. There’s open dialogue and we look forward to an ongoing relationship.”
If it
hasn’t already happened, Gold Fields is likely to reverse its international gold assets into a company with those of Polyus, the Norilsk gold vehicle. Though that may again strand the SA assets, it will also give Mvelaphanda Resources, a 15% shareholder in the local assets, an opportunity to improve its position.
Now there’s mopping up to be done. Gold Fields didn’t intend suing the Securities Regulation Panel (SRP) and, at the time of writing, it’s unlikely that Harmony will appeal the High Court ruling judging its bid a single one. Nor are threats of suing Gold Fields’ executives for defamation likely to take place.
In any event, haven’t lawyers earned enough from the affair?
Nonetheless, there are serious questions for the SRP to tackle. It’s unfortunate that the SRP’s executive director, Richard Connellan, was found to have been less than objective in his support for Harmony’s takeover plans. Judge Sunita Snyders of the High Court [Johannesburg] found five
instances where Gold Fields believed it was prejudiced in dealings with Connellan. “All of the incidents mentioned favoured Harmony and prejudiced Gold Fields. . . Consequently, the conclusion of a reasonable suspicion of bias is an inevitable one.”
It was previously reported in this story that the JSE was not doing enough to tackle some of the lapses imputed to the SRP. In point of fact, the JSE has no jurisdiction over the SRP which was established independently by the Companies Act to monitor takeover and merger activity. Miningmx regrets having created a false impression about the JSE.
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