Gold Fields, IamGold, and Their Unharmonious Merger

Gold Fields is among the world's largest mining companies. Harmony Mining is another of the world's largest mining consortia. As gold prices climbed recently, the potential profits from consolidated enterprises was a tempting prospect. That prospect lingered in the minds of Harmony managers, and it presented itself in the business plans of managers of IamGold, a Canadian mining concern. Thus the race to acquire Gold Fields began.

IamGold promised Gold Fields shareholders a reasonable share swap price, and Gold Field managers seemed prepared to accept IamGold's offer. Then Harmony began discussions with Norilsk Mining, a Russian company that holds a 20.3% stake in Gold Fields. Through delicate manoeuvring, Harmony sought to acquire a 34.9% stake in Gold Fields. Harmony planned to combine the votes from its stake and the votes from the Norilsk stake to produce a 55.2% voting block of shares. That voting block would be more than sufficient to force a Harmony take-over of Gold Fields. The new mining company would be the world's largest.

Gold Fields filed a complaint with the South African competition authority alledging Harmony's tactics would classify the take-over as a merger in pursuance of South Africa's Competition Act. The intent was to prevent Harmony acquiring the 34.9% stake: If Harmony could not acquire a stake in Gold Fields that would enable Harmony to control a majority of the votes, Gold Fields could continue its merger with IamGold.

Gold Fields partially won the first round of its case. Harmony's acquisition of the stake was delayed, and the matter went to the Competition Court of Appeal. After delaying its decision by one day, the Competition Court of Appeal concluded Harmony could acquire the stake in Gold Fields, but Harmony would be constrained from exercising any voting rights attached to its stake until the question of whether the take-over was a "merger" exhausted all appeals.

As judicious as that finding may seem, it left neither litigant very pleased. Gold Fields was scheduled to vote on the IamGold bid on 26 November, and Harmony planned to use its stake to block that bid and announce its take-over offer. Because of the Court of Appeal order, no vote was taken. The final decision from the Competition Authority will be presented within the next month.

This decision will be more significant than just another merger approval or denial. The mining industry is a very ologopolistic operation, and if Harmony "merges" with Gold Fields, that ologopoly will have a dominant market leader that could exert pressure to determine prices, output, and entry barriers worldwide. If this precedence evolves, the gold mining industry could go the way of other precious metals industries and be relegated to the whims of powerful cartels. Various competition authorities tried to limit the power of these cartels, but in some cases the cartels prove they are more powerful than the judicial decisions that would constrain their activities. At this time Harmony and Gold Fields lack cartel strength, but as with any merger inquiry, the foremost concern should not be the impact of the proposed merger, but consideration of the next anticipated merger by the acquiring entity. Today Gold Fields, tomorrow IamGold, the next day the smaller mining companies.

Go To Page: 1 2