UPDATE 4-Barrick, Newmont trade barbs after merger talks implode

Mon Apr 28, 2014 4:40pm EDT

Related Topics

* Hostile bid for Newmont seen as unlikely

* Sources says reporting structure in new entity was an issue

* Failed talks throw spotlight on Barrick CEO Sokalsky's future

* Newmont and Barrick shares slide on the NYSE (Recasts with comments from both companies, updates stocks)

By Euan Rocha, Allison Martell and Soyoung Kim

TORONTO/NEW YORK, April 28 (Reuters) - Failed merger talks between Barrick Gold Corp and Newmont Mining Corp descended into acrimony on Monday, with the two large gold miners publicly accusing each other of scuppering a deal favored by many investors.

Barrick, the world's largest gold miner, landed the first blow on Monday, saying it believed a merger would have been in the best interests of shareholders, but that Newmont's board had decided its shareholders' interests were best served by remaining independent.

Newmont, which has remained quiet for the last two weeks as reports around the stalled merger talks swirled, issued a scathing response, slamming its suitor and stating bluntly that negotiations failed due to the lack of a "constructive, mutually respectful" dialogue.

Shortly after midday, Barrick issued a rebuttal stating the talks failed after Newmont attempted to renege on key terms around a deal that had been already hammered out. Newmont responded with yet another release saying it did not renege on a deal and strongly disagreed with Barrick's characterization of events.

The failed talks hit shares of both companies, which have large overlapping operations in Nevada.

Newmont's stock slid 6.7 percent to $24.67 on the New York Stock Exchange, as many investors do not see Barrick attempting a hostile bid. Barrick shares fell 3.1 percent to $17.33.

IRRECONCILABLE DIFFERENCES

Denver-based Newmont slammed Barrick's outgoing chairman and founder, Peter Munk, and Co-Chair John Thornton, who is now set to succeed Munk at Barrick's annual shareholder meeting on Wednesday.

"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's Chairman Vincent Calarco said in a letter to Barrick's board made public on Monday.

Sources familiar with the situation told Reuters last week that talks had hit a snag around the power-sharing structure at the board level within a new combined entity.

In an interview with the Financial Post last week, Munk said Newmont's board was not shareholder friendly. In particular, he criticized Newmont for shutting media out of its recent annual meeting, something he said Barrick would not do.

"That's the kind of people they are, and that's why it's so difficult to make a deal," he said.

A source familiar with the negotiations said Munk's comments were the last straw for Newmont's board.

In the letter made public on Monday, Newmont's Calarco said Munk's comments indicated a lack of mutual respect or shared values that would be necessary to realize the full potential of a combined entity.

"Our efforts to find consensus have been rejected out of hand repeatedly," said Calarco, adding that Thornton had refused to budge on some fundamental strategic and structural issues.

Last week, sources had told Reuters that the two sides had agreed to a 14-member board for the new combined entity, with seven from Barrick, five from Newmont and two new nominees. Newmont Chief Executive Officer Gary Goldberg was set to hold that post at the new entity, while Thornton would become non-independent chairman.

Although most aspects of a deal had been hashed out, sources familiar with the deal told Reuters that one of the key sticking points was the balance of power between Thornton and Goldberg.

Thornton was set to be formalized as executive chairman when a deal closed, and in that capacity would have had the power to override Goldberg. Sources say Newmont viewed this structure as problematic, while Barrick saw it as fundamental given that it was paying a premium and giving its target the CEO role.

DELAWARE LAW PROTECTION

Toronto-based Barrick and rival Newmont have considered merging on numerous occasions over the past two decades. The latest breakdown in talks marks the third time within the last seven years that discussions have fallen apart.

Newmont's latest rejection appears to leave Barrick with few options to pursue a deal. Legal experts have said a hostile bid for Newmont is unlikely since the company is incorporated in Delaware, a jurisdiction that typically respects a board's right to reject a bid it does not deem to be in the best interests of its shareholders.

To succeed with a hostile bid, Barrick would probably have to wade into a long, difficult proxy battle to unseat Newmont's board, a move many view as unlikely.

The end of merger talks also raises questions about the future of Barrick CEO Jamie Sokalsky, who has worked there for more than two decades.

Sources familiar with the situation had told Reuters Sokalsky was stepping aside once a Newmont deal closed and that he had been largely excluded from the merger discussions, which were being driven by Thornton. (Editing by Franklin Paul, Jeffrey Hodgson, Lisa Von Ahn and Meredith Mazzilli)

FILED UNDER: