Zeev's Turnips Patch-No Politics (ZEEV)

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*** Bankers scramble on mine mergers ***

Veteran managers say they've seen nothing like it

Barry Critchley
Financial Post
May 31, 2004

Maybe investment bankers have some value after all.

That's one interpretation to the dramatic events of late last week when two U.S.-based companies -- Idaho-based Couer d'Alene Mines Corp. and Colorado-based Golden Star Resources Ltd. -- announced that they wanted to acquire Vancouver-based Wheaton River Minerals Ltd. and Toronto-based IAMGold Corp., respectively.

The events are dramatic because two months back IAMGold announced that it would buy Wheaton River: if that transaction was approved by the shareholders of the two companies, the country's fourth largest gold producer would be created.

That merger -- which had been endorsed by the boards of the two companies -- was set to be voted on tomorrow week. Both meetings may still take place -- though the shareholders of both companies will now have a decidedly different group of matters to consider before making up their mind.

How different were the events of last week? Veteran mergers and acquisitions practitioners can't recall a similar situation of two companies trying to overturn an agreed-upon-transaction by making separate proposals to the two parties to the seemingly-locked in deal. The two new companies to the fray haven't yet made a formal bid: instead they have both made proposals which they hope to formalize once certain conditions are met.

The events of last week climaxed about two months of work for the investment bankers: BMO Nesbitt Burns, which is acting for IAMGold and CIBC World Markets, which is acting for Couer d'Alene. Both sprung into action a few days after Wheaton and IAMGold announced their deal at the end of March.

The two firms beavered away and didn't become aware of what each other was trying to do until a few weeks back. That's when they put their thinking hats on and agreed to two things: net the so-called break fee that Wheaton and IAMGold had put in place; and make the announcement of their plans at the same time -- after the markets closed last Thursday. But there was no collusion because Couer d'Alene Mines and Golden Star Resources aren't planning to join forces and merge. (If the Wheaton/IAMGold break fees have to be paid, the netting means that Couer d'Alene Mines will have to pay US$26-million to Golden Star.)

The investment bankers were galvanized into action when a substantial number of IAMGold shareholders voiced their dissatisfaction with the all-stock terms of the Wheaton River acquisition. In short, IAMGold shareholders felt they were being asked to pay too much to acquire the much larger Wheaton River. IAMGold -- which was advised by National Bank Financial and RBC Capital Markets -- offered 0.55 of its shares for each Wheaton River share -- a price that represented a 22% premium to Wheaton's then share trading price.

The IAMGold shareholders' mood worsened as the value of their holdings fell since the deal to purchase Wheaton River was announced.

Enter Golden Star -- a gold producer with most of its operations in Ghana and run by an Aussie, Peter Bradford. Golden Star was also well known to IAMGold: its operations in Ghana are just up the road from IAMGold's; and a few months back, the two companies held some exploratory discussions about merging. Those discussions took place without the involvement of an investment banker.

Said one analyst: "There is a natural business fit between Golden Star and IAMGold," noting that senior management at Golden Star was in Brazil -- and out of communication reach -- when Wheaton and IAMGold announced their deal.

So BMO Nesbitt Burns -- which over the past few years has played a fairly major role in advising and financing the rebirth of Wheaton River -- studied the already announced deal while looking for a possible role for Golden Star.

In time, BMO became aware that CIBC was looking for ways to respond to the IAMGold/Wheaton River acquisition. So the two firms agreed to work together for no other reason than that it made sense. For instance, if Golden Star made a bid for IAMGold, there was a real possibility that Wheaton and IAMGold would change the terms of their all-stock deal -- and thereby negate the overture from Golden Star.

One way to prevent the possibility was to take Wheaton River out of the play. One sure way of making that happen was for another company to make a bid for Wheaton. Enter Couer d'Alene. Last Thursday it agreed to offer $4.50 for each Wheaton River share -- a level that represents a 14% premium to its recent trading price.

At the same time Golden Star agreed to offer 1.15 of its own shares for each IAM Gold share -- a level that represents a 13% premium to the recent trading price.

Investors reacted in a dramatic fashion last Friday: trading in Wheaton River (WRM/TSX) was massive (44 million shares) even if there was no impact on the price (it closed at $3.96) while shares of IAMGold (IMG/TSX) posted a big increase (up 29 cents to $7.76) on big volume (18.2 million).

As a result Wheaton River and IAM Gold aren't trading in line with the share exchange ratio that was agreed upon in March. Finally, as expected, the share price of Golden Star (GSC/TSX) took a big tumble -- down 48 cents or 6.7% to $6.76.

This week, the focus turns back to management at Wheaton River and IAMGold. They can do nothing and wait for next week's vote; or they can react and call off their deal or they can revive the terms in some manner. Both companies are in a good position as both have been offered premium-to-market bids.

http://www.canada.com/national/nationalpost/columnists/story.html?id=ae1eeefc-fdb2-4153-b220-aec496c...