Newmont Mining Corp. plans to pay its shareholders a one-time dividend worth US$470-million after a number of its biggest investors pushed for the giant miner to redo the terms of its US$10-billion takeover of Goldcorp Inc.
The sweetener makes it more likely that Colorado-based Newmont will win support from its shareholders, who are set to vote on the transaction in a couple of weeks. If Newmont succeeds, it will bypass Barrick Gold Corp. and become the biggest gold company in the world by market value, production and reserves.
In January, Newmont announced a friendly deal buy Goldcorp in a mostly stock transaction, at a premium of 17 per cent. But some Newmont investors argued the offer was too high considering Goldcorp’s poor past performance.
Last week, New York hedge fund Paulson & Co., which owns a 2.7-per-cent stake in Newmont, threatened to vote against the deal unless Newmont improved the terms, especially in light of Newmont’s recent joint venture (JV) agreement with Barrick Gold Corp. Paulson argued the JV had materially increased the value of Newmont and as a result Goldcorp shareholders should receive less of its stock as part of the deal. Newmont is currently offering 0.328 of a share and 2 US cents in cash for each Goldcorp share.
On Monday, Newmont said shareholders of record as of April 17 will be entitled to 88 US cents a share. The dividend is payable only if shareholders on both sides approve the takeover, and is payable before the transaction closes, meaning existing Goldcorp shareholders won’t benefit.
In a statement on Monday, Newmont’s chief executive Gary Goldberg said the company had “listened carefully” to its shareholders, and the payout is “in recognition of the potential synergy value of the Nevada joint venture.”
Earlier this month, Barrick and Newmont reached a JV agreement in Nevada that both companies said will generate about US$500-million in cost savings each year for the first five years.
“I am very pleased with the dividend,“ Joe Foster, portfolio manager with VanEck, Newmont’s third biggest shareholder, said in an interview.
“It sends a great message to the entire industry. Shareholders are getting a portion of the synergies upfront. I don’t think we have ever seen that in this industry before.”
Paulson wrote in a statement that it considered the dividend a step in the right direction and no longer opposed the transaction.
Shares in Goldcorp rose by 2.7 per cent on Monday and are trading just a little below Newmont’s offer price, meaning most investors believe the deal will be successful.
Yet, some uncertainty remains. A severance to be paid out to Goldcorp’s chairman Ian Telfer continues to enrage some shareholders.
A few weeks ago, Goldcorp announced a near-tripling in Mr. Telfer’s retirement payout to US$12-million from US$4.5-million. On Friday, British Columbia Investment Management Corp. said it intended to vote against the transaction in large part because of the “egregious payout” to Mr. Telfer.
On Monday, VanEck’s Mr. Foster reiterated that he was “appalled” by the payment to Mr. Telfer, as well as severance payable to outgoing Goldcorp CEO David Garofalo, who stands to take home $6.7-million in cash and gain early access to $10-million in share awards.
“They should revise the payouts that they are giving," Mr. Foster said. "I don’t know why they haven’t done something about it. But I hope they do something about the payouts before the vote.”
Tom Palmer, chief operating officer of Newmont, acknowledged the compensation controversy is “certainly a factor” for some investors heading into the shareholder votes.
“But I think the feedback we’re getting from our shareholders is that the things that we at Newmont can control, we are managing.”
Goldcorp did not respond to a request for comment on Monday.
On April 4, Goldcorp shareholders will meet to consider the merits of the deal while Newmont shareholders convene on April 11.
At Goldcorp’s end, two thirds of votes cast must be in favour for the deal to succeed. At Newmont, a majority of votes cast is the threshold. In addition, Newmont shareholders will vote on whether to allow an increase in their share count, with a majority of shares outstanding needed in favour for the transaction to go through.