Beware the Mega- Merger

The big news today is that Newmont and Goldcorp are getting hitched in a $10 billion deal. This is a biggie.

This deal comes after Barrick and Randgold got together in a $5.4 billion. Make no mistake, today’s deal is a direct response to the former deal.

As a very general rule of thumb, when the price of a commodity falls, that sparks consolidation in the industry. In other words, everyone starts to merge — and that’s exactly what’s happening.

Beware of mega merges. This is especially true for defensive ones. They’re doing these deals, not because they want to, but because they have to.

People think M&A is some elevated science. It’s not. More often, the story goes something like this. Why did A buy B? Well, they really didn’t want to but they thought, if they didn’t, C was going to move in and buy B. So, A struck first, not realizing C probably felt the same way.