South African takeover battle intensifies

A pair of crucial votes has seen shareholders on both sides of the raging South African takeover battle fall in behind their respective companies.

On Nov. 12, shareholders of Harmony Gold (HMY-N) overwhelmingly approved their company’s plan to take over larger rival Gold Fields (GFI-N). In all, 87.7% of the shares voted at the company’s general meeting were in favour of the deal. Harmony says around 85% of its shares were represented at the meeting.

The company also says it received a discretionary proxy for 67 million shares represented by American depositary receipts (ADRs), all of which were voted in favour of the proposed resolutions. Harmony says that even without the ADRs, the takeover plan would have passed with an 83.7% approval.

“Harmony shareholders have clearly recognized this potential value and demonstrated their overwhelming support for the proposed merger,” says Harmony CEO Bernard Swanepoel. “We are confident that Gold Fields shareholders, who will hold approximately sixty-six per cent of the enlarged group and therefore benefit substantially from the value unlocked by this transaction, will do likewise.”

Harmony needed 75% of its shareholders to approve the plan, which will involve increasing its authorized share capital by 750 million shares to 1.2 billion shares. At the offer’s exchange rate of 1.275 Harmony shares for each Gold Field share, Harmony would need to issue nearly 627 million new shares to complete the takeover.

In a subsequent news release, Gold Fields CEO Ian Cockerill said the outcome of the vote was “not a surprise, as Harmony’s financial position had left its shareholders with little choice other than to support the company’s hostile and coercive takeover bid to acquire the more valuable Gold Fields’ assets.

“Harmony is trying to solve its financial problems at the expense of our shareholders,” he added. “They desperately need our cash to service their debt. Whichever way you look at the Harmony offer, Gold Fields shareholders stand to lose.”

Since its unveiling in mid-October, Gold Fields has consistently snubbed Harmony’s offer as significantly undervalued, and launched a barrage of legal challenges to impede it. That defence strategy got the nod from shareholders at a subsequent meeting, with the re-election of several Gold Fields directors, including Chairman Chris Thompson; each received more than 98% of the votes cast. Shareholders also approved a special retainer for Thompson and increased director fees.

Gold Fields says more than 70% of the company’s shares were represented at the meeting, and that the vote provided a strong endorsement to the Gold Fields board and its strategy. Shareholders failed to approve the issue of new shares; that resolution required a 75% majority.

Despite shareholder support, Gold Fields’ defence has been faltering lately. The latest chink showed up after South Africa’s High Court dismissed Gold Fields’ application to have Harmony’s bid declared unlawful and to block its implementation.

Gold Fields had argued that Harmony’s all-stock offer failed to comply with the South African Companies Act, as it neglected to include a registered prospectus for the new shares to be issued under the offer, something Gold Fields said made the offer unlawful and of no legal effect.

Says Swanepoel: “This application was one of a string of legal and regulatory attempts by Gold Fields’ directors to divert attention from the value that the Harmony offers to Gold Fields’ shareholders will generate.

“Gold Fields’ board and management have been determined to frustrate the ability of Gold Fields’ shareholders to assess the merits of the Harmony offers.”

The High Court victory comes on the heels of a ruling by the country’s Securities Regulation Panel (SRP) that Harmony and Norilsk Nickel are not acting in concert against Gold Fields. Norilsk, which owns a 20% stake in Gold Fields, has agreed to vote its shares against Gold Fields’ plan to merge its assets outside the “southern African development community” with those of Iamgold (img-t).

Decision pending

Harmony scored another victory at the Competition Commission, where it was recently granted permission to notify as a separate party in its bid for Gold Fields, something it must do under South African merger laws. At presstime, the Competition Tribunal had still not handed down its decision on Gold Field’s petition to block the early settlement portion (aimed at acquiring 34.9% of Gold Fields’ shares) of Harmony’s bid. Some reports suggest the Tribunal’s ruling will not be released until Jan. 18.

“We are pleased, but not surprised, that this latest time-wasting initiative has also been resolved,” says Swanepoel. “We’re getting closer to the point where shareholders will be allowed to decide based on the relative merits of the two proposed transactions.”

Meanwhile, Gold Fields recently took its fight to fend off Harmony to the U.S. District Court for the Southern District of New York, where the company has filed a complaint alleging that Harmony has violated U.S. securities laws. Gold Fields wants the court to block Harmony’s offer until it provides shareholders with all material information about its offer and shareholders have had adequate time to digest that information. That hearing was to have been held Nov. 17.

Gold Fields contends that the early settlement portion of Harmony’s offer is unlawful, as the registration statement and other related documents filed with the U.S. Securities and Exchange Commission (SEC) are “misleading, inaccurate and omit material information about Harmony and its coercive two-step offer structure.”

Gold Fields says the lawsuit is aimed at protecting its shareholders, which it believes are being forced to make an investment decision without accurate and complete information about Harmony’s offer, and subsequent plans if its bid is successful.

Alleged bribery

More recently, the battle reached a new level of nastiness with reports that Harmony had accused Gold Fields’ head of security of trying to bribe one of its senior employees to become an informer and turn over any documentation related to the takeover. Gold Fields has denied the accusation.

Harmony also accused Gold Fields of a breach of confidentiality regarding the release of a document prepared by HSBC (now Harmony’s adviser) in August to its own advisers and the media. The document outlines a proposed transaction between Harmony, Gold Fields and Norilsk Nickel that would see each company’s South African and international assets spun-off into two separate entities. The document had been provided to Gold Fields for use at the Competition Tribunal hearing.

Harmony says the unsolicited proposal was one of many submitted by several independent investment banks, and that it does not intend to implement any of the ideas submitted.

While things have been going Harmony’s way of late, the company was been dealt something of a blow by the SEC. Gold Fields stated that the SEC had ordered Harmony to omit some 10 pages from its preliminary offer prospectus. The affected pages include pro forma financial information regarding a combination of the two companies.

Cockerill said that since its launch (and based on each company’s share price on the Johannesburg Stock Exchange), Harmony’s bid has resulted in nearly US$1.2 billion worth of value leakage for shareholders of Gold Fields and Harmony combined up to Nov. 12.

“In a rising gold market, shareholders of both Harmony and Gold Fields are suffering serious value loss as a result of this value-destructive and ill-conceived proposal by Harmony.”

Gold Fields shareholders are scheduled to vote on their company’s plan to merge with Iamgold on Dec. 7; Harmony’s bid hinges on a rejection of that plan.