Bloomberg News

Eldorado Drops Amid $2.4 Billion Bid for European Goldfields

December 20, 2011

(Updates with closing share prices in second paragraph.)

Dec. 19 (Bloomberg) -- Eldorado Gold Corp. fell the most in three years after it agreed to buy European Goldfields Ltd. for about C$2.5 billion ($2.4 billion) in what would be its biggest acquisition.

Eldorado plunged 13 percent to close at C$13.46 in Toronto, the biggest drop since Dec. 1, 2008. European Goldfields declined 4.7 percent to C$11.28.

The shares-and-cash bid valued European Goldfields at the equivalent of C$13.08 a share, Vancouver-based Eldorado said yesterday in a statement. That was 10 percent more than the price on Dec. 16 and 31 percent more than the close on Dec. 5, before Whitehorse, Canada-based European Goldfields said it had received takeover offers.

It’s “not unusual” for an acquirer to decline after announcing a transaction that involves issuing shares, David Christensen, chief executive officer and portfolio manager at ASA Ltd. in San Mateo, California, said in a telephone interview. ASA’s closed-end fund has about $600 million assets under management, including Eldorado shares.

Eldorado would increase its share count by 28 percent as a result of the transaction, based on 551.5 million shares outstanding, according to data compiled by Bloomberg. European Goldfields shareholders would own about 22 percent of the combined company after the deal closes, the companies said.

‘Lower Cash Costs’

The acquisition would give Eldorado a mine and projects in Greece, Romania and Turkey and help more than double annual output by 2015, it said. It follows Gold-Ore Resources Ltd.’s C$150 million accord to buy Canada’s Astur Gold Corp. last week, after prices for the precious metal climbed to a record in September amid 10 straight years of gains.

Eldorado’s deal “adds more growth at lower cash costs,” Brad Humphrey, a mining analyst at Raymond James Ltd., said by telephone from Toronto. Humphrey has an “outperform” rating on Eldorado.

The bid was priced at 5.1 times European Goldfields’ assets compared with 2.2 times for 10 comparable deals, according to data compiled by Bloomberg. Eldorado is the fifth-biggest gold company in Canada by market value.

European Goldfields jumped 22 percent on Dec. 6 after saying it received “preliminary and indicative approaches from third parties.” Centerra Gold Inc., a Toronto-based producer, had expressed interest in the company, the London-based Sunday Times reported Dec. 11, citing people it didn’t identify.

‘Ability for Growth’

The combined company would produce 650,000 ounces of gold a year and more than 1.5 million ounces by 2015 as projects come on stream, European Goldfields said. The company’s dividend will stay unchanged “with enhanced ability for growth” as European Goldfields’ development projects are built, Eldorado said.

Gold for February delivery fell 0.1 percent to settle at $1,596.70 an ounce on the Comex in New York. The futures reached a record $1,923.70 an ounce on Sept. 6.

“Eldorado has a strong asset base in Turkey and Greece and was always the most obvious suitor,” London-based Numis Securities Ltd. said today in a note to investors. “Given the friendly nature of the bid, the immediate share premium and the synergies with Eldorado, we do not expect a bidding war to break out.”

Qatari Deal Delay

The C$13.08-a-share offer represents a 20 percent premium over the average price over the past 20 days. That compares with a 26 percent average premium for global gold deals announced in the past 12 months, according to data compiled by Bloomberg.

Eldorado said its offer, agreed to by both boards, is backed by BlackRock Investment Management (UK) Ltd., which owns a 7.3 percent stake in European Goldfields. The largest holder in European Goldfields is Greece’s Ellaktor SA, which owns a 12.2 percent stake via its Aktor unit, according to data compiled by Bloomberg.

The proposal requires approval of two-thirds of European Goldfields shareholders at a meeting planned for mid-February. Eldorado offered 0.85 of its shares and 0.001 Canadian cent for each share of European Goldfields. The target company plans to postpone a Dec. 22 shareholders meeting that had been scheduled to approve a financing transaction with Qatar Holding LLC until after the shareholders vote on the acquisition.

European Goldfields announced Oct. 3 it had agreed to a $600 million loan from Qatar Holding, which previously acquired 9.9 percent of the company and an option on another 5.1 percent from Ellaktor, to help fund its Greek projects. The loan agreement, which needs European Goldfields shareholder approval, included warrants that would allow Qatar Holding to increase its stake to 29 percent of the company.

‘Broad Developments’

“We’ve kept the Qataris abreast of broad developments as this process has emerged,” Timothy Morgan-Wynne, European Goldfields’ chief financial officer, said on a conference call to discuss the Eldorado transaction.

The company will have the capacity to fully fund its expansion and development plans internally, Eldorado CEO Paul Wright said on a later conference call with analysts and investors.

Prior to the European Goldfields deal, Eldorado’s biggest acquisition was the A$2 billion ($1.98 billion) takeover of Sino Gold Mining Ltd. in 2009. The company offered A$3.4 billion for Australia’s Andean Resources Ltd. in September 2010. Eldorado later withdrew the bid after it was trumped by Goldcorp Inc.’s A$3.6 billion offer.

European Goldfields operates the Stratoni mine and received permits in July for its Skouries and Olympias projects in Greece after a five-year wait. The company also has an 80 percent stake in a gold and silver mining operation in Romania and is exploring in the Ardala region of northeastern Turkey.

European Goldfields is being advised by BMO Capital Markets, Lazard & Co. and law firm Stikeman Elliott LLP. Eldorado is being advised by GMP Securities LP, Bank of America Corp. and law firm Borden Ladner Gervais LLP.

--With assistance from Soraya Permatasari in Melbourne and Paul Tugwell in Athens. Editors: Steven Frank, Tina Davis

To contact the reporters on this story: Liezel Hill in Toronto at lhill30@bloomberg.net; Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editor responsible for this story: Steven Frank at sfrank9@bloomberg.net


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