Mark Bristow, boss of Randgold, has promised disgruntled UK investors he will “pop by every three months [for] a cuddle”. It will take more than that to neutralise vitriol over the gold miner’s plan to quit the London market. The transaction responsible — a combination with Barrick Gold with an enterprise value of $22bn — could irk international investors in Randgold, too. As long as Mr Bristow hugs them more frequently, they will probably acquiesce.
Only UK-focused funds would be left bereft. They are already riled by Unilever’s relocation plan. Randgold has delivered superior returns, albeit dented recently by slower growth and political spats in Africa. The shares, like those of US-listed Barrick, have lagged peers and the falling gold price.
This deal is billed as a “nil-premium merger”, a mythical beast like the chimera. An organism may have a couple of heads. But one of them needs to be in charge. Mr Bristow looks set to play that role at New Barrick, shipping in Randgold finance director Graham Shuttleworth. Barrick’s executive chairman John Thornton, a tough ex-Goldmanite, will focus on “strategy”.
The deal thus resembles a reverse takeover where a large group buys a smaller one whose management it covets. The failure of Barrick to pay a premium should upset Randgold shareholders. Their third of New Barrick is no more than the split implied by undisturbed market values.
Moreover, Barrick has net debt of $4.3bn, even after painful years of whittling down steep borrowings. Randgold has net cash of $600m. The deal will therefore reduce Barrick’s leverage, as measured by enterprise value divided by ebitda, from 1.3 to below 1 times. Randgold investors would receive no compensation for their philanthropy.
They marked the shares up 6 per cent all the same. They are humming the theme from Indiana Jones, as they do whenever Mr Bristow makes a bold move. The swashbuckling South African hopes to raise efficiency at mines with longer lives than Randgold’s, where grades are declining. Mr Bristow is also likely to sell lower-value Barrick investments, focusing the group on high-quality assets. Resulting payouts would recompense Randgold shareholders for their cash.
Exposure to North America will dampen political risks for Randgold investors, too. But some specialist UK funds will still see this defensive merger as singularly offensive.
Get alerts on Randgold when a new story is published