November and December 2019 saw seven mergers and acquisitions (M&A) deals announced involving 12 companies—possibly the most we have seen in just two months. Four of the deals were asset sales, with mid-tier companies buying non-core mining properties located in Canada, Australia and Senegal from super-majors Barrick and Newmont. The other three deals were mergers or acquisitions, each with a different deal structure.
Source: VanEck. Data as of December 2019.
The market clearly favored the all-cash and merger-of-equals (MOE) deals over the all-stock premium deal. We believe there are three reasons for this: 1) cash and MOE deals are structures that limit speculation from arbitrageurs; 2) premium stock deals have a legacy of destroying value for shareholders; and 3) investors frown on large, potentially dilutive quantities of stock being issued.
In the longer term we believe that all of these deals will create value. However, we cannot over-emphasize the importance of properly structuring a deal so that the newly-formed combination moves forward with positive performance and enthusiastic support from shareholders.
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