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Gold/Mining/Energy : Franco-Nevada (FN - TSE) - zero debt, cash rich royalty co. -- Ignore unavailable to you. Want to Upgrade?

To: Gary H who wrote (313)	6/19/2000 5:53:00 PM
From: Traveling Man	Read Replies (1) \| Respond to of 511

Different Viewpoints on merger. These think GF got ripped. TM Gold Fields merger a pragmatic line Dimension Data's move to London is strategic DIMENSION Data (Didata) gained finance department approval to shift its primary listing to London just as Gold Fields announced plans to merge with Franco Nevada and, in effect, move its primary listing to Toronto. The two groups have very different reasons for listing abroad. Didata wants to position itself for further global expansion, particularly into the US, and intends raising $1,25bn to fund this. It also believes the London listing will boost its ability to attract and retain skilled staff, through a global share option scheme. By contrast, the proposed Toronto listing is more pragmatic than strategic for Gold Fields International, the entity which will result if Gold Fields' plans to merge with Franco are approved by the finance ministry and by the shareholders of the two companies. As Gold Fields chairman Chris Thompson keeps trying to convince a sceptical Johannesburg market, the deal is more a takeover of Franco by Gold Fields than the other way around, since Gold Fields is the survivor company and dominates the management of the merged entity. The deal-makers spent much effort trying to structure it that way, in which case the merged entity would have had its primary listing in Johannesburg. However, Canadian law presented two practical problems. Firstly, many Franco shareholders would have been liable for substantial capital gains tax bills had they sold to Gold Fields. Secondly, Canada's institutional investors have limits on how much of their portfolios can be invested in foreign-owned companies. Many would have been required to sell down their holdings and, again, face capital gains tax. Thompson emphasises that this is not a listing-driven deal. "Even if Franco had been unlisted, we would still have bought it," he says. This is not too surprising. Gold Fields had been seeking for some time to expand offshore, but did not have the resources to do it on any significant scale. With Franco, it gets its hands on nearly 700m in cash and marketable investments, positioning it to compete with the likes of AngloGold and Barrick in the race to acquire new gold projects or buy other gold companies. So in contrast to Didata, Old Mutual, SA Breweries and Billiton, which listed in London in large part so they could access capital, Gold Fields is accessing offshore cash simply by doing the deal with Franco. The proposed merger has met a cool response in Johannesburg because analysts believe Gold Fields is being sold too cheaply and some believe that now that Gold Fields is clearly "in play", a rival bidder could emerge offering a higher price. However, there is probably a greater danger of a competitive bid for Franco. "We are getting Franco cheaply their relative price is way cheaper than the other North American gold companies," says Thompson. By Gold Fields' calculations, the other four North American majors trade at 60% premiums to net asset value while Franco is at a 5% discount. Franco's relatively poor rating reflects market perceptions that it has gone "ex-growth". It is a royalty company which has run out of royalties to buy, and that is the main reason it is willing to sell to Gold Fields, which has the operating expertise which the two companies believe is necessary to enable them to take advantage of opportunities for consolidation in the world's gold market. A royalty is essentially a call on the cash flow of a mine. In the exploration boom which began in the 1980s, Franco made its money by getting in early to fund new projects, or buying properties and selling them to mine operators, in return for royalty entitlements. Exploration has dried up. "At a gold price of $275, there are no developable new mines," says Thompson. "Franco realises they have fished their lake dry and cannot add more value but they are aware there are opportunities in the operating side of the business so the quid pro quo is they will let us run the merged entity".