Kinross Gold Corporation (KGC) has announced a $7.1 billion takeover of Red Back Mining Incorporated (RBI) which may turn out to be very good business, however, the initial reaction by the investment community was less than enthusiastic as turnover hit 22 million shares traded and the stock price fell 5.45% to close at $15.45.
As with most takeovers the target company, Red Back will receive a premium of 21% to their share price and the predator tends to see their stock go lower. The deal still needs to be sold to the shareholders which should get approval however the price paid may well be seen as expensive.
The highlights are as follows:
The combination will create a pure gold senior producer with an exceptional growth profile, matching Kinross’ strong base of high-quality mines, growth projects and proven track record, with Red Back’s early-stage operating mines and outstanding exploration and expansion potential.
Red Back shareholders will receive 1.778 Kinross common shares, plus 0.110 of a Kinross common share purchase warrant for each Red Back common share held. Pursuant to the transaction, Kinross expects to issue approximately 425 million1 Kinross common shares and approximately 26 million Kinross common share purchase warrants. Following completion of the transaction, the current Kinross shareholders will hold approximately 63%1 of the combined company, while current shareholders of Red Back will hold approximately 37%.
The value of the offer is C$30.50 per Red Back common share, representing a premium of approximately 21%, based on the preceding 20-day volume-weighted average price of Red Back common shares traded on the TSX and the July 30, 2010 closing price of Kinross common shares traded on the TSX. The warrants are expected to be listed on the TSX and be exercisable for a four-year term at an exercise price of US$21.30, representing an approximate 30% premium to the July 30, 2010 closing price of US$16.39 for Kinross common shares.
Based on analyst consensus production estimates for Kinross and Red Back, forecast pro forma gold production for the combined company would be approximately 3.9 million ounces in 2015. Kinross believes there is significant upside potential for Red Back’s assets beyond this estimate, based on its evaluations and the potential for exploration and production expansion.
The combination gives Kinross a strong position in West Africa, one of the world’s fastest-growing and most prospective gold regions, as well as a management team experienced in the region.
Lukas Lundin, Chairman of the Red Back Board of Directors, and Richard Clark, CEO of Red Back, are expected to join the Kinross Board of Directors following closing of the transaction.
Red Back shareholders will benefit from Kinross’ strong operating and development experience and from diversification through exposure to Kinross’ balanced portfolio of eight operating mines and future growth projects.
The transaction provides a capital gains tax-deferred roll-over option for taxable Canadian holders of Red Back shares.
To read this article in full please click here.
Kinross Gold Corporation trades on the TSX under the symbol of K, and on the NYSE under the symbol of KGC. Kinross has a market capitalization of $10.86 billion, with average turnover of around five million shares, a P/E of 31.64 and closed today at $15.45.
Stay on your toes and have a good one.
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