December 19, 2011 / 3:27 AM / 6 years ago

UPDATE 4-Eldorado to buy European Goldfields for C$2.5 bln

* European Goldfields shareholders to receive stock, cash

* Deal represents 48.4 pct premium to Dec. 5 closing price

* Eldorado shareholders will own 78 pct of combined entity (Recasts, adds CEO comments, background)

By Euan Rocha and Nadia Damouni

TORONTO/NEW YORK, Dec 18 (Reuters) - Eldorado Gold Corp said on Sunday it has agreed to acquire smaller rival European Goldfields Ltd for about C$2.5 billion (US$2.4 billion), in a move aimed at expanding its asset base in Greece and Turkey.

The deal enhances Eldorado’s project pipeline and it will create a low-cost gold miner with significant liquidity and the financial heft necessary to fund its many development projects.

“We are extremely pleased to have reached this mutually beneficial transaction,” said Eldorado’s chief executive, Paul Wright. “Integration of European Goldfields’ business with our own will provide Eldorado with the dominant gold mining business in the Aegean Region.”

The offer represents a nearly 50 percent premium to European Goldfields closing share price on the Toronto Stock Exchange on Dec. 5, the last trading day before the company disclosed it had received preliminary takeover proposals from third parties.

European Goldfields has long been seen as a potential target for rivals, particularly after it received this year a much-delayed Greek mining permit that could turn it into a mid-tier miner and one of Europe’s largest primary gold producers.

Eldorado, which owns six operating mines spread across Asia, Europe and South America, was long viewed as a potential suitor, due to the project overlap that the two companies have in Greece and Turkey.

The two companies will have combined current gold production of about 650,000 ounces, with output growing to more than 1.5 million ounces by 2015, as some of their development projects come into production.

“IMMEDIATE PREMIUM”

“Today’s transaction offers excellent value to shareholders through an immediate premium, reduced execution risk and future upside through participation in Eldorado, a leading gold growth story,” European Goldfields’ chief executive, Martyn Konig, said in a statement.

European Goldfields shareholders will be offered 0.85 of an Eldorado share and C$0.0001 in cash for each European Goldfields share they own. The exchange ratio represents a value of C$13.08 per share, based on the Dec. 16 closing stock price of Eldorado on the TSX of C$15.39. Shares of European Goldfields closed at C$11.84 on Friday on the TSX.

European Goldfields board has unanimously recommended that its shareholders vote in favor of the proposed transaction.

The friendly proposal from Eldorado potentially scuppers a $600 million project financing deal that European Goldfields signed with Qatar’s sovereign wealth fund in October. That deal, along with a $150 million loan note and a related warrant issuance, was to be put to a shareholder vote on Dec. 22.

European Goldfields said it intends to adjourn that shareholder vote until after Eldorado and European Goldfields shareholders vote on the proposed tie-up.

The takeover requires the support of at least two-thirds of the votes cast by shareholders of European Goldfields. It also requires the backing of a majority of Eldorado’s shareholders.

The two companies plan to hold their respective shareholder votes on the same day, sometime in mid-February 2012.

Directors and senior officers at both Eldorado and European Goldfields have entered into voting support agreements and have agreed to vote in favor of the transaction, the companies said.

Following the completion of the deal, current Eldorado shareholders will own about 78 percent of the combined company, while shareholders of European Goldfields will hold around 22 percent, on a fully diluted basis.

If European Goldfields decides to terminate the agreement in favor of a superior proposal, Eldorado is entitled to a C$75 million break-fee. Vancouver, British Columbia-based Eldorado also has the right to match any superior proposal that may emerge.

European Goldfields was advised by BMO Capital Markets and Lazard & Co, and its legal adviser was Stikeman Elliott LLP. Eldorado’s financial advisers included GMP Securities LP and BoA Merrill Lynch. Its legal counsel was Borden Ladner Gervais LLP.

$1 = 1.0360 Canadian dollars Reporting by Euan Rocha in Toronto and Nadia Damouni in New York; Editing by Dale Hudson, Gary Crosse

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