In the latest instance of merger and acquisition activity in the gold stocks sector, Eldorado Gold (ELD.TSX, NYSE: EGO) announced on Sunday that it entered into a friendly agreement to acquire European Goldfields (EGU.TSX) for C$2.5 billion. The proposed acquisition is a combined stock and cash deal, with Eldorado offering 0.85 of an ELD share and C$0.0001 in cash per EGU share.
TD Securities analyst Steven Green noted in a report to clients Monday morning that “This would give ELD and EGU shareholders 78% and 22%, respectively of the combined company…This equates to C$13.06 per EGU share representing a 10.5% premium based on EGU and ELD’s Friday closing prices of $11.84 and $15.39, respectively. This also represents a 48% premium to EGU’s closing price on December 5th, the day prior to EGU acknowledging it had received preliminary approaches (or 57% premium to the 20 day VWAP of both companies prior to Dec. 5th).”
Green also noted that “As an all-share transaction, we do expect ELD shares to come under pressure this morning due to arb flow given the size of the deal.”
Shares of EGU.TSX were unchanged at C$11.84 in morning trading, while ELD tumbled C$1.40, or 9.1%, to C$13.99 per share. Eldorado’s U.S.-listed ADR, EGO, plunged $1.58, or 10.6%, to $13.40 per share.
The acquisition requires approval from two-thirds of European Goldfields shareholders and a simple majority of Eldorado Gold shareholders. The shareholder votes are expected by mid-February 2012, and the deal is expected to close by the end of February.
European Goldfields’ asset base consists of 3 development stage gold projects in Greece and Romania and one small polymetallic (lead/zinc/silver) mine in production in Greece.
Green went on to say that “Given the time line of EGU’s financing deal with Qatar Holding (previously scheduled for Dec.22nd) we believe Eldorado viewed this as their chance to acquire good sized assets in a region they are currently active, for what appears to be a good price.”
“It does appear that the EGU board reviewed other proposals and this was the best option,” Green added. “Given that and the fact that there are no other obvious acquirers active in this region, we believe the chances of a competing offer emerging are low.”
West Kirkland Expands Gold Mineralization at TUG Property
The TUG property is part of 1,020 square kilometers (252,000 acres) of mineral rights in the Long Canyon Trend that the Company has optioned through a transaction with Fronteer Gold – prior to its acquisition by Newmont Mining – and with Rubicon Minerals. The combined Newmont and Rubicon option agreements give West Kirkland a dominant land position within the Long Canyon Trend and will be the focus of the Company’s exploration efforts in Nevada. Full West Kirkland Mining Press Release.
* This hole confirms the system is open for further expansion
* Northeast structures parallel to the Long Canyon Trend at the north end of the TUG deposit, beyond hole WT11-007, will be the target of drilling in January 2012