Barrick Gold on Monday announced an unsolicited plan to merge with Newmont Mining in an all-share transaction, prompting Newmont to criticize Barrick's performance and potentially setting up a hostile bid.
Shares of Barrick and Newmont fell 1 percent Monday morning.
Newmont said it would consider Barrick's overture, but claimed its plan announced last month to buy Goldcorp for $10 billion represents the "best opportunity to create optimal value" for shareholders. It notes that Barrick is proposing to purchase Newmont's shares at a discount to last week's closing price.
Newmont said it has already reviewed and rejected potential tie-ups with Barrick and Randgold Resources. Barrick completed its purchase of Randgold last month.
"Newmont has previously determined that Barrick's risk and return profile is inferior on many fronts, including factoring Barrick's comparatively ineffective operating model, poor track record on delivering shareholder returns and unfavorable jurisdictional risk," Newmont said in a statement.
Barrick CEO Mark Bristow said the merger would unlock more than $7 billion net present value of real synergies, a major portion of which is generated by combining the two companies' assets in Nevada.
"The combination of Barrick and Newmont will create what is clearly the world's best gold company, with the largest portfolio of Tier One gold assets and the highest level of free cash flow to drive future growth and support sustainable shareholder returns, run by a management team with an unparalleled record of delivering value," he said in a statement.
"Most important, it will enable us to consider our Nevada assets as one complex, which will result in better mine planning and fully realize the state's enormous geological potential for all stakeholders."
Newmont countered that the Nevada synergies could be achieved by entering a joint venture with Barrick. That path would allow Newmont to reap the benefits without "exposing Newmont's shareholders to Barrick's riskier portfolio, integration risks and transaction costs," the company said.
Barrick's announcement said the deal would be "long overdue," and "far superior to Newmont's proposed acquisition of Goldcorp Inc."
The merger would offer each Newmont shareholder 2.5694 Barrick shares. Barrick shareholders would own approximately 55.9 percent of the merged company and Newmont shareholders would own the rest. The combined company intends to match Newmont's annual dividend of 56 cents per share.
Credit Suisse said the nil-premium that Barrick is offering may not appeal to Newmont shareholders, although the synergies with Barrick are more obvious than those with Goldcorp.
"It is possible this is simply the first step in the negotiation process, and we note that hostile takeovers tend to pose challenges," Credit Suisse analysts wrote in a research note on Monday.
The merger, if approved, would come after years of relatively stagnant gold prices, with futures trapped in a range between $1,000 and $1,400 per ounce since 2013. Gold closed above the key $1,300 per troy ounce last month after falling into a slump last summer, a trend some have attributed to a weaker dollar and buying by global central bankers.
"Considered globally, the merger represents a radical and long-overdue restructuring of the gold industry, and a transformative shift from short-term survival tactics to the long-term creation of sustainable value," Bristow said.
Barrick said the merger would result in an estimated 14 percent rise in Newmont's current net asset value per share and offer the company's shareholders a compelling investment in a company of much higher quality.
Barrick, which spent $6.1 billion on buying rival Randgold Resources last month, has formed new management teams and doubled down on administrative cost cuts as part of Bristow's plan to best rivals. Canada's Globe and Mail newspaper reported last week that Barrick was considering a hostile bid for Newmont for about $19 billion in stock.