Gold Fields (NYSE:GFI) -22.9% in Tuesday's trading, erasing all of this year's gains, after agreeing to acquire Yamana Gold (NYSE:AUY) in an all-stock deal valued at $6.7B that will make the South African miner the world's fourth largest gold producer.
Gold Fields (GFI) will offer 0.6 of its shares for each Yamana (AUY), which implies a 34% premium to Yamana's closing price on May 27, based on the 10-day volume weighted average traded price of Gold Fields' ADRs, the company said.
In the past five years, only one large gold takeover was announced at a higher premium, according to Bloomberg.
UBS analysts said the 34% premium implies a 2022 valuation-to-EBITDA ratio of 8.2x, which looks expensive at first glance relative to Gold Fields' (GFI) consensus multiple of ~5X, but the merger would create a combined entity with production of 3.5M oz, bringing the company into the same league as the top three global gold producers which trade on a median multiple of 8.3x.
The purchase of Yamana (AUY) - which has projects in "mining friendly" jurisdictions including Canada, Argentina, Chile and Brazil - is "a good deal [that] adds a lot of value to Gold Fields, and I wouldn't look at what the share price does today," Noah Capital analyst Rene Hochreiter told Bloomberg.
Gold Fields (GFI) had to pay a premium because South Africa-listed producers trade at a discount to international rivals - "the price to pay in order to compete on a global scale" - Nedbank's Arnold Van Graan said, according to Bloomberg.
BMO Capital's Jackie Przybylowski believes a competing bid to the Golf Fields (GFI) offer is unlikely, and high termination fees of $300M to Gold Fields and $450M to Yamana (AUY) would "limit the value to other potential future bidders."
Gold Fields (GFI) recently reported Q1 revenues of $1.88B, +5.6% Y/Y, on gold equivalent production of 580K oz, up 7% Y/Y.