TD Securities is originating out against the friendly merger-of-equals between Alamos Gold Inc. and AuRico Gold Inc., with analyst Steven Green saying the transaction doesn’t seem sensible for Alamos shareholders.
Since Alamos has $358 million in cash with no debt, he noted the offer “effectively rescues” AuRico from its balance sheet issues and provides Alamos no premium as a swap.
Green pointed to the transaction’s enterprise worth of $392 million for Alamos, versus AuRico’s EV of a little more than $1 billion. As a result, he believes the merger undervalues Alamos and will also be significantly dilutive to his net asset value estimate.
The analyst downgraded Alamos to hold from buy, and cut his price target on the stock to $9 from $11.
Green also noted that the deal effectively puts both companies in play, which explains why both stocks rose on Monday’s news.
He considers Alamos the more attractive target, but noticed that friendly mergers within the gold sector don\’t break up very often. However, the analyst suggested Agnico Eagle Mines Ltd., Kinross Gold Corp. and Iamgold Corp. could be interested in Alamos.