April 28, 2014 / 2:18 PM / 3 years ago

Newmont ends merger talks with Barrick, cites lack of respect

TORONTO/NEW YORK (Reuters) - Newmont Mining Corp (NEM.N) said on Monday it had ended merger talks with Barrick Gold Corp (ABX.TO) (ABX.N), slamming its suitor and stating bluntly that negotiations failed due to the lack of a constructive, mutually respectful dialogue.

Denver-based Newmont has been quiet for the last two weeks as reports around the stalled merger talks have swirled. But the miner broke its silence on Monday, criticizing Barrick’s outgoing chairman and founder, Peter Munk, and his successor, Co-Chairman John Thornton.

“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.

In a brief statement earlier on Monday, Barrick said it believed a merger of the two gold miners would have been in the best interests of shareholders, but Newmont’s board had decided that its shareholders’ interests were best served by remaining independent.

The announcements sent shares of Newmont sliding 6.4 percent to $24.77 in midday trading in New York, as many doubt Barrick will attempt a hostile bid. Barrick shares were down 2.6 percent at $17.42.

WAR OF WORDS

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, a source familiar with the situation told Reuters that one of the key sticking points was that Thornton wanted Goldberg to report into him and not to the board. That would have made Thornton’s role more akin to that of an executive chairman with the power to override the CEO.

Newmont declined to comment on this detail, and Barrick was not immediately available for comment.

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.

Analysts and others have long thought a tie-up was logical from a cost-cutting perspective, particularly given the vast overlap in the companies’ combined operations in Nevada.

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. He was chief financial officer before being named CEO two years ago, just as the company’s problems began to spiral as the price of gold slid. He moved quickly to cut costs, stop over-budget projects and bolster the balance sheet through asset sales and a $3 billion equity issue.

Sources familiar with the situation had told Reuters that 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

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