Goldcorp of Canada revealed yesterday that it would pay $8.6bn (£4.5bn) in shares to buy its US rival Glamis Gold and create one of the world's biggest gold-mining groups.
The combined entity, which will be called Goldcorp, will command a market value of about $21.3bn and produce more than 2.3 million ounces of the precious metal a year from proven reserves of 41.1 million ounces.
Only the rival Canadian groups Barrick Gold and Newmont Mining, and South Africa's AngloGold Ashanti and Gold Fields, are bigger.
Ian Telfer, the chief executive of Goldcorp, said: "The combination of Goldcorp and Glamis will create a world-class, low-cost gold producer in the Americas with industry-leading growth from an exciting portfolio of development projects. We believe that this transaction represents an excellent value proposition to our shareholders."
Under the terms of the deal, Glamis shareholders will receive 1.69 Goldcorp shares, or $51.49 a share based on Goldcorp's closing price on Wednesday. That represents a 32.7 per cent premium to Glamis's closing price.
After the tie-up, Goldcorp shareholders will hold about 60 per cent of the combined company and Glamis shareholders about 40 per cent.
Kevin McArthur, the president and chief executive of Glamis, will take on the same roles in the combined group. Mr Telfer will become chairman. The new board will comprise six executives from Goldcorp and four from Glamis.
The deal has been approved by the boards of both companies and is expected to complete in November. Glamis has agreed to pay a potential break fee to Goldcorp of $215m should the deal falter.
A hostile $3.4bn bid by the Nevada-based Glamis for Goldcorp failed earlier in the year. Similarly, Goldcorp's move for another Canadian gold group, Wheaton River, also foundered.
Returns from the combined group are expected to benefit from economies of scale in a consolidating market. Soaring metals prices over the past four years are spurring mining groups towards combining. Figures from the information provider Bloomberg show there have been takeover offers worth more than $100bn in the mining industry this year. Goldcorp and Glamis had been touted as potential targets for takeover before yesterday's announcement.
Gold hit its highest price for 26 years in May and has jumped by 22 per cent in 2006 alone. Costs associated with mining across the world are estimated to have surged by 30 per cent as companies are forced to compete for raw materials, labour and equipment.
Goldcorp operates across North America and Australia, while Glamis is centred on Central America and Nevada. Merrill Lynch Canada and CIBC World Markets advised Goldcorp, while Glamis was advised by JP Morgan Securities and Orion Securities.Reuse content