The wait is almost over for investors eager to see whether Barrick Gold Corp.'s underwriters can get the gold miner's $3-billion (U.S.) stock sale across the finish line.
The deal, launched late in the afternoon on Halloween, has been a tough sell. A number of investors balked at the offering because they wanted clarity on the company's corporate governance before buying in, while others are simply too timid to touch gold miners – especially one that has written off $13-billion in 2013.
With the deal set to close on Thursday, the lead underwriters now have a new option at their disposal: a "cleanup" trade that sells the remaining shares for lower than $18.35 each, their original offer price. Roughly 75 per cent of the deal has been sold, according to people familiar with the transaction.
Had the underwriters attempted to sell the remaining portion at a cut-rate price before the deal officially closed, etiquette on Bay Street dictated that they would have had to offer the new terms on all shares that were originally purchased for $18.35 apiece. But because investors will receive these shares upon closing, their price can no longer be adjusted and the underwriters can now go back to these same investors and offer them first dibs on the unsold stock at a lower price, allowing them to lower their average cost.
In fact, some of these shareholders may have already gotten calls from the underwriters, asking at what price they would be willing to buy more – a common tactic in these situations.
The timing of any cleanup trade is uncertain, and will come down to the underwriters' preferences. Royal Bank of Canada, Barclays Capital and GMP Securities may choose to sell the remaining 25 per cent first thing Thursday morning, or they may wait until gold prices rebound a bit.
They also have the option to not launch a cleanup trade. Technically, when a deal does not sell, all of the underwriters are liable to take their portion of the deal and can then sell it out into the market over time. By doing this and hoping that they can trickle shares out at higher prices in the future, the underwriters could be capable of earning their full underwriting fees, which amounted to $90-million for this deal. However, when possible, investment banks prefer not to hold stock in their inventories, and therefore work together on a cleanup transaction.
People familiar with the transaction noted that some of the smaller syndicate players have already sold the shares they were liable for, because they have strong retail adviser networks.