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Tuesday, 17 December 2019

Centamin accepts Endeavour’s due diligence offer

M&A WATCH- That Endeavour-Centamin merger may not be off the table after all: Endeavour Mining and gold miner Centamin, the London-listed operator of Egypt’s Sukari gold mine, have agreed to conduct reciprocal due diligence, less than two weeks after Centamin rejected the Canadian company’s merger proposal. Endeavour said in a statement (pdf) following a meeting between Endeavour CEO Sébastien de Montessus and Centamin Chairman Josef El-Raghy on Saturday that the agreement would be a “critical precursor” to deciding whether a merger could go ahead, and would allow the companies to “further understand each other’s assets.”

This is Endeavour’s second attempt at luring the Centamin board: Centamin’s board earlier this month rejected an all-share merger bid from Endeavour to exchange 0.0846 of its shares for every Centamin share, valuing the latter’s share capital at around USD 1.9 bn. Centamin would have received a 47.1% stake in the new company while Endeavour would have been the majority shareholder. Centamin said that the proposal would disproportionately benefit Endeavour and that it did not reflect the value of the company, whose six-month average value on the LSE is 1.8x that of Endeavour’s on the Toronto Stock Exchange.

Endeavour’s offer isn’t the only thing standing in the way of a merger: Sources told Al Mal yesterday that the different financial positions of the two companies may present another obstacle to any proposed merger. Centamin currently has a net cash flow of around USD 300 mn, but Endeavour is highly leveraged in comparison, holding debts and financial obligations of almost USD 730 mn.

Endeavour will need to “dig deep” to find a way to make its offer appealing to Centamin, the initial version of which “hardly glistens,” the Financial Times’ influential Lex column writes. The company can’t offer more shares, which would cost its shareholders majority ownership of the merged entity, and its lack of liquidity means using cash to sweeten the proposal is also out of the question. Endeavour essentially needs to show more for itself than bn’aire Naguib Sawiris’ network of connections in Egypt “and a couple of smaller gold assets in west Africa.”

Endeavour has given Centamin its proposed due diligence timetable, and emphasized the need to agree on “the scope and timetable” for the exercise. Centamin is yet to publicly respond to the statement.

There has been a mixed response from analysts, with some seeing Endeavour’s new agreement as a promising sign and others remaining skeptical about whether the companies are seeing eye-to-eye. Berenberg analysts quoted by the Financial Times described the agreement as “encouraging” while Peel Hunt suggested that they were “completely on the same page.”

The clock is ticking: According to UK merger rules, Endeavour needs to bring an offer to the table by no later than 31 December. But given the time that had already passed since Centamin rejected the previous offer, the company is bidding to have the deadline extended so that due diligence can be conducted.

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