Zeev's Turnips Patch-No Politics (ZEEV)

[FinancialAdvisor]

Costs of Harmony-Gold Fields fight jump to $76 mln

Costs of Harmony-Gold Fields fight jump to $76 mln
Fri Jan 14, 2005 08:26 AM ET
By Eric Onstad

JOHANNESBURG, Jan 14 (Reuters) - Harmony Gold's (HARJ.J: Quote, Profile, Research) estimated costs of its hostile takeover bid have more than doubled to $46 million, while target Gold Fields (GFIJ.J: Quote, Profile, Research) expects to pay $30 million to defend itself, the companies said.

A portion of the costs will show up in forthcoming quarterly results, but both South African gold producers declined to say by how much.

"You report them as you incur them," said Harmony Marketing Director Ferdi Dippenaar, declining to give a breakdown. Harmony's results for the quarter to end-December are expected to show a sixth consecutive loss.

Harmony launched a bid in October valued at $8 billion to take over Gold Fields and create the world's biggest gold company. The high costs are due partly to advisory fees from investment banks and heavy legal expenses following a flurry of court challenges by both sides, analysts said.

Investors have criticised the costs incurred in the bitter fight, which will further pressure profits at companies already weighed down as a strong rand cuts their export income.

"Those costs are substantial; that's a terrible destruction of value," said fund manager Patrice Rassou at Old Mutual Asset Managers in Cape Town.

Harmony's Dippenaar noted that advisers' fees have been structured so that the full cost is paid only upon a successful takeover.

"When we get to the quarterlies, a lot more information will be made available," he said.

COSTS INCREASING

Harmony's estimated cost of $46 million (276 million rand) compares with its net loss of 523 million rand last year and its cash operating profit of 580 million rand.

The $46 million figure appeared in a December filing to the U.S. Securities and Exchange Commission and was based on an exchange rate of 5.811 rand to the dollar.

In a registration filing shortly after it announced its bid in October, Harmony had estimated total costs at $18.15 million.

Gold Fields expects to spend around $30 million to defend itself against Harmony's bid, with $18 million of that representing flat fees for advisors Goldman Sachs and JP Morgan, spokesman Willie Jacobsz said.

He also confirmed that costs would be reflected in results as they are paid but declined to give details.

"Our total estimate of costs is at this stage in the region of $30 million, but we do recognise that there will be increases in that. Some of those costs have come through, others have not yet come through," he said.

Gold Fields, the world's fourth biggest gold producer, is strongly opposed to the all-share bid from the world's sixth biggest gold company.

Harmony got 11.8 percent of Gold Fields in the first stage of a two-pronged offer.

But it has not received many recent acceptances to its second offer, which was expected since it has not got approval yet for the tie-up from competition authorities, Dippenaar said.

The current offer is due to close on Feb. 4 but is expected to be extended, because a decision by competition authorities is not due until March.

Investors were not likely to tender shares when the offer value was around 6 percent below Gold Fields share price, Rassou said. Current share prices are pricing in an exchange ratio of 1.35-1.40 compared with Harmony's offer of 1.275 new Harmony shares for each Gold Fields share, he added.

Harmony's shares, which have slid 36 percent since it announced its offer, fell 3.8 percent to 53.85 rand by 1245 GMT. Gold Fields, which has shed 21 percent during the offer, lost 1.03 percent to 73.25 rand.


LINK: http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh08236_2005-01-14_13-26-47_l14....


Comments: This mainstream article sounds like a buy signal to me for HMY!