Mystery solved: Why Newmont is offering a mere 2 cents in cash as part of its bid for Goldcorp – by David Milstead (Globe and Mail – January 17 2019)

It is the mystery of the two cents. When Newmont Mining Corp. said on Monday it will buy Goldcorp Inc. for about $10-billion, swapping its stock for Goldcorp’s, it said it would add 2 US cents per share in cash to the transaction. The tiny little sweetener will cost Newmont just US$17-million.

Why even bother? Robert Willens, a long-time U.S. securities analyst who specializes in matters of taxation, seems to have the answer. Newmont is creating a sizable but little-understood tax benefit for Goldcorp Inc.’s U.S. shareholders that effectively makes its offer more valuable than it appears.

The companies have not addressed the matter. Newmont declined to comment for this story and Goldcorp did not respond to a request. But Mr. Willens told his clients on Tuesday that the structure of the deal makes it taxable for Goldcorp’s U.S. and Canadian shareholders. Usually, companies do everything to avoid that.

But given how far Goldcorp stock has fallen – down 75 per cent from 2012, and 30 per cent in the past year – virtually no Goldcorp shareholders will have any capital gains to tax. Instead, Newmont’s decision to create a taxable transaction will create capital losses – and Goldcorp shareholders will be able to use those losses to save on their taxes if they sell a different, profitable holding.

Here’s how the 2 US cents come in. A company’s shareholders give up their stock in a merger. But, generally, if they receive stock in the acquiring company instead of cash as their payment, they do not have to pay taxes on any gains at the time of the deal.

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