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4/18/14

The WSJ scoops on Barrick $ABX (ABX), Newmont $NEM (NEM) and failed merger talks: Thoughts arising

We're going to have all sorts of repercussions and bouncing of news this weekend from this WSJ report on the apparent failed merger talks between ABX and NEM. As long as the intel is sound it's a  nice scoop for the WSJ team for sure ( @GillianTan @macdonaldajm @DanaMattioli ) and as a house like WSJ is unlikely to have run the story without decent reason we can be fairly confident of its veracity too (have to trust people at some point, right?). It also fits right in with ABX's specific situation, as it's well known that just about everything they have is up for sale at the right price. Therefore, NEM could feasibly swoop in and pick up the whole lot at a nominal discount (while of course both sides carefully explain to the world that it's a 50/50 merger of equals. Right).  However there are caveats that come with the news and here's a handful by way of IKN-type reaction:
1) There's scant detail offered, apart from the fact that talks broke down. Shout 'duh' if you like, but it also means the journos weren't given massive inside track material.
2) The news means that the talks broke down, i.e. the main takeaway here is that there isn't going to be a merger. Duh again, but Occam's Razor beats derived speculation so don't expect some massive stoking on Monday's markets for gold majors just because of this.
3) This isn't the first time ABX and NEM have talked seriously about a deal, but just like before it's seen as a very difficult fit. Both companies have baggage, noisy balance sheets, uncertain growth profiles. What's more there'd be internal opposition from both sides about any deal (middle management, upper management, even high level execs sweating on the phrase "cost synergies" and how it relates to "pink slips"). That and a dozen other reasons why this mooted merger has failed before and apparently failed again. It's not one we should ever hold our collective breaths on.
Finally, it wouldn't surprise me if there's a larger game being played here. I mean, just for one example, it's understood down Chile way that ABX wants to JV with Chinese capitals (Citic) on Pascua Lama and there'd be nothing better to chivvy a hesitant partner into signing on the dotted line than a nicely sourced (and easily deniable) story about the big catch almost getting away. But hey, that's just my squirmy brain being squirmy, right Mr Munk?

PS: And another thing; Good Friday? This news leaked at the start of a long weekend (and WSJ can't afford to sit on it for fear of being out-scooped)? Hmmmm....