Applied Casesadvanced

Case: The Newmont and Newcrest acquisition

In November 2023 Newmont completed its acquisition of Newcrest Mining (ASX: NCM), an all-scrip deal that created the world’s largest gold producer and stood as Australia’s biggest M&A transaction of the year. Newcrest shareholders received 0.400 Newmont shares for each Newcrest share plus a special dividend of up to US$1.10 per share, an implied equity value of about A$26.2 billion. This case teaches precedent-transaction analysis and the control premium. Because a buyer must pay to win control, the multiples actually paid in past deals sit above the trading multiples of standalone peers, since the price embeds a control premium and expected synergies. The control premium equals the offer price per share divided by the unaffected price minus one, and a rational acquirer pays it only when control is expected to create at least that much value per share, here through about US$500 million of annual pre-tax synergies.

Why it matters

Comparable-company multiples tell you what the market pays for a minority stake that just rides along with management. A takeover is different. The buyer wants the whole company and the right to run it, so it must bid above the undisturbed price to persuade owners to sell. That extra is the control premium, and precedent transactions are simply the record of premiums other buyers were willing to pay for similar assets. The premium is not a gift. It is a bet that holding the controls, by cutting shared costs, combining mines and reshaping the portfolio, will produce more value per share than the premium itself. For Newcrest, Newmont mostly paid in its own shares, so both sides shared the synergy upside and the gold-price risk that followed.

Formulas

Control premium

\text{Control premium} = \dfrac{P_{\text{offer}}}{P_{\text{unaffected}}} - 1

The offer price per share is compared with the unaffected, or undisturbed, share price before the bid leaked into the market. The result is the percentage uplift a buyer pays to win control, which it must expect to recover through synergies and better control of the assets.

Precedent-transaction implied value

V_{\text{target}} = \left(\dfrac{\text{EV}}{\text{EBITDA}}\right)_{\text{deal}} \times \text{EBITDA}_{\text{target}}

A multiple actually paid in a comparable past acquisition, here enterprise value to EBITDA but a price per gold-resource ounce works the same way, is applied to the target metric. Because deal multiples already embed a control premium and synergies, they normally exceed the trading multiples of standalone peers.

Worked examples

Scenario

Newmont offered 0.400 of its own shares plus a special dividend of up to US$1.10 for each Newcrest share, and stated a 30.4 percent premium to Newcrest’s undisturbed price as at the close of 3 February 2023. To show the mechanics, suppose the unaffected Newcrest price was A$10.00 and the scrip-plus-dividend offer was worth about A$13.04 per share. What control premium does that imply, and when is paying it rational?

Solution

The verified deal facts are the 0.400 exchange ratio, the special dividend of up to US$1.10 per share, the stated 30.4 percent premium to the 3 February 2023 undisturbed price, the implied equity value of about A$26.2 billion, and completion on 6 November 2023. The per-share prices below are illustrative and chosen only to reproduce the stated premium. Apply the control-premium formula. An offer of about A$13.04 against an unaffected price of A$10.00 gives A$13.04 divided by A$10.00 minus one, which is about 0.304, or a 30.4 percent premium that matches the announced figure. Paying it is rational only if control is expected to create at least that much value per share. Newmont pointed to about US$500 million of annual pre-tax synergies and at least US$2 billion of cash improvements from portfolio optimisation, the source of value that has to justify the premium. The wider lesson is that a precedent like this one, a deal struck at a roughly 30 percent premium, becomes a benchmark for valuing the next gold target, since its multiple already bakes in control and synergy value that a trading comparable does not.

NoteVerified deal facts from the Newmont releases are the 0.400 exchange ratio, the up to US$1.10 special dividend, the 30.4 percent premium to the 3 February 2023 undisturbed price, the about A$26.2 billion implied equity value, the 6 November 2023 completion, and the about US$500 million of expected annual pre-tax synergies. The A$10.00 unaffected price and A$13.04 offer per share are illustrative and exist only to reproduce the verified 30.4 percent premium, not to state Newcrest’s actual share price.

Common mistakes

✗Precedent-transaction multiples and trading-comparable multiples are interchangeable. Deal multiples embed a control premium and expected synergies, so they normally sit above the trading multiples of standalone peers and should not be mixed.
✗The control premium is measured against the share price on the announcement day. It must be measured against the unaffected, or undisturbed, price before the bid leaked, otherwise the run-up already in the price understates the true premium.
✗A high premium always destroys value for the buyer. The premium destroys value only if it exceeds the per-share value that control and synergies actually create, so the test is whether expected synergies cover the premium.
✗An all-scrip deal costs the acquirer nothing because no cash leaves. Issuing shares dilutes existing owners and hands target holders a claim on future value, so scrip consideration has a real economic cost set by the exchange ratio.

Revision bullets

•Newmont acquired Newcrest in an all-scrip deal completed 6 November 2023
•Terms were 0.400 Newmont shares plus up to US$1.10 special dividend per Newcrest share
•A 30.4 percent premium to the 3 February 2023 undisturbed price, about A$26.2 billion equity value
•Control premium equals offer per share divided by unaffected price minus one
•Precedent-transaction multiples exceed trading comparables because they embed control and synergies
•The premium is rational only if control and synergies create at least that much value per share

Quick check

Why do precedent-transaction multiples normally exceed the trading multiples of standalone comparable companies?

In the Newmont and Newcrest deal, the control premium should be measured against

Connected topics

EPS Accretion Comparable Cos EV/EBITDA Precedent Deals Control Premium

Sources

Newmont (2023)
Newmont Corporation. Newmont Enters into Definitive Agreement to Acquire Newcrest (14 May 2023) and Newmont Acquires Newcrest (6 November 2023), investor news releases, newmont.com.
Primary source for the verified figures, the 0.400 exchange ratio, the up to US$1.10 special dividend, the 30.4 percent premium to the 3 February 2023 undisturbed price, the about A$26.2 billion implied equity value, and the 6 November 2023 completion. The per-share prices in the worked example are illustrative.
Titman & Martin on relative valuation
Titman, S., & Martin, J. D. Valuation: The Art and Science of Corporate Investment Decisions. Pearson.
Grounds relative valuation with comparables and precedent transactions and the role of acquisitions in setting market prices.
Damodaran on the value of control
Damodaran, A. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
Develops control premiums, the value of control and synergy, and why prices paid in acquisitions exceed standalone trading values.

How to cite this page

Dr. Phil's Quant Lab. (2026). Case: The Newmont and Newcrest acquisition. Derivatives Atlas. https://phucnguyenvan.com/concept/sabv-case-newcrest-ma

← Back to the atlas See in the network →