- Summary: Goldcorp Inc. (GG) entered a deal to acquire rival gold-miner Glamis Gold Ltd. (GLG) for stock valued at $7.8 billion. Some investors were disappointed by the deal, reflected in Goldcorp's sharp 9.2% loss in share price yesterday. Glamis was up intraday over 18%. Glamis shareholders would receive 1.69 Goldcorp shares for each Glamis common share, a 33% premium based on Wednesday's closing prices. The deal requires the support of two-thirds of Glamis shareholders, but doesn't require approval from Goldcorp's shareholders. In reaching the deal, the companies assumed a long-range price of $550 an ounce, lower than current levels, but higher than historical averages. Goldcorp is counting on continued high gold prices and promising development projects to make up for deal terms.
- Comment on related stocks/ETFs: Phil Davis speculates that the deal represents Goldcorp's desire to control a greater share of gold output, thereby keeping the commodity's price artificially inflated: "You need monopolies, or at least cartels, in order to maintain high pricing, and this administration has never met a merger it didn't like." In a recent conference call, GG CEO Ian Teffer expressed his continued bullishness on gold prices, speculating gold still has another $200 to the upside. His reasons: Declining mine supply, flat central bank sales, and India and China continuing to take much of the output. Yesterday's volatile action is why some traders look towards the streetTRACKS Gold Trust ETF (GLD) as a safer play on the underlying metal.
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