Inside Look: Why the Barrick-Newmont Deal Collapsed and How it Could of Been Avoided
Why the biggest merger of all-time fell apart and how can future companies can avoid it from happening to them
The merger between Newmont Mining and Barrick Gold was said to be all but done. Both companies had agreed upon terms and were reportedly in the final stages of agreements. Then in the blink of an eye it all ended. Days later war of words broke out with finger pointing occurring on both sides to why the deal wasn’t going to happen.
It was going to be the biggest deal in history for the mining industry; combining two of the world’s largest gold mining companies into one powerhouse. The possibilities were endless for the companies, including a potential $1 billion in cost savings. So why did the merger discussions fail?
Clash of personalities
The two firms have tried numerous times over the years to merge, going back at least as far as 1991. Under the now-abandoned proposed terms, the merged companies were set to spin off their assets in Australia and New Zealand. That move would have allowed the companies to focus on their most productive assets in Nevada as well as squeeze the most synergies, while offering investors the choice to participate in a separate company.
For a marriage to be successful, both parties have to consent. In the proposed marriage between Barrick Gold and Newmont Mining, the two parties could not find common ground.
The merger talks didn’t work out because two companies could not agree on how the combined business would run. According to Barrick Gold, Newmont had reneged on three key elements to the proposed deal: a Toronto headquartered company, the composition of the combined company and the roles of the chairman, chief executive officer and lead director.
On April 28, Barrick Gold released a press release stating that merger talks between the two gold giants were over. Barrick’s outgoing Chairman Peter Munk openly criticized Newmont, claiming that the company is “not shareholder friendly.” The actions by Munk were very antagonizing towards Newmont’s board, especially when the two companies are negotiating a partnership.
Newmont then released a letter it sent to Barrick co-chairman John Thornton and the company’s board of directors.
"While our team has found your management team's engagement to be constructive and professional, the same constructive nature cannot be said of our discussions with your co-chairman on certain fundamental strategic and structural issues over the past two weeks," Newmont chairman Vincent Calarco wrote.
"Our efforts to find consensus have been rejected out of hand repeatedly. And, as we contemplated further dialogue, we read in the continuing reporting of the transaction in the financial press a pointed characterization of our company as 'extremely bureaucratic and not shareholder friendly.' Nothing could be further from the truth."
A difference in culture also played a role in the collapse. Barrick Gold is well-known for being a very aggressive company by nature. Throughout its history, it has not shied away from big acquisitions in its effort to grow. On the other hand, Newmont is very much more conservative. The company does not engage in the same level of empire building.
The failure of the Barrick/Newmont deal demonstrates that clashing personalities and a difference in company culture can destroy a transaction that seemingly makes sense in every other way.
How to avoid failure
Successfully implementing a merger is not easy. Roughly two in three mergers and acquisitions don’t succeed.
"I like to tell my clients that you can learn lessons from successful transactions, from failed transactions, from any transaction," says Fentress Seagroves, a principal with PricewaterhouseCoopers' transaction services group, which advises on merger and acquisition strategy. "All will raise different challenges."
To maintain and complete a successful merger, companies must have three common traits: a disciplined corporate strategy, a thorough due-diligence process and attention to transitional risk.
"Failure in a transaction is often created by the lack of a disciplined approach," Seagroves says. "You have to do the same amount of research in an acquisition as you would trying to grow it organically."
"Spend a lot of time on how the contract can create protections for you," Seagroves says. "You have to be sure all those things you planned in the beginning--why this is a strategic fit--actually happen. These aren't things you start thinking about at close."
Once you’ve negotiated a deal and signed the papers, the work isn’t done.
"In a lot of ways, that's just the beginning," Seagroves says, noting that a successful transaction requires planning, even for the unexpected, like losing key employees or customers. "It's very hard to change a business effectively if you don't know what you're going to be up against, post-close."
No matter what, one fact will always remain true about mergers: they are very difficult to implement.
Although the merger between Newmont Mining and Barrick Gold didn’t pan out, some analysts remain optimistic the two sides will eventually reach one. Both companies are in dire need of bringing down their all-in sustaining costs and the deal would greatly benefit investors of both companies.
However, mergers often have more to do with glory-seeking than business strategy. One of the major driving forces behind mergers and acquisitions is ego, which are typically bolstered after buying the competition. Another driving force behind failed mergers can be fear. Uncertain outlook and factors all play a role in the diminishing of a potential
For a successful merger to happen, both companies should 100 percent agree on: financial compatibility, cultural compatibility, equal market opportunities, and systems and infrastructure. Focusing on these four main areas should enable companies to conduct their due-diligence and successfully complete their deals.
And while it’s a mistake to assume that personnel issues are easily overcome, it’s a necessity for any business to grow.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.