Gold Fields Limited (NYSE:GFI) has unsuccessfully bid for Australia's Northern Star Resources Ltd (OTC:NESRF). The board has unanimously rejected an unsolicited 38.7 billion Australian dollar ($27.1 billion) takeover proposal that would have created the world's second-largest gold producer behind Newmont.

Following the announcement, the stock fell more than 16%.

Gold Fields Takeover Proposal

The cash-and-stock scheme of arrangement offered 0.3125 new Gold Fields shares plus 7.25 Australian dollars ($5.09) in cash for each Northern Star share, leaving the Australian miner's investors with roughly 33% of the combined entity through a secondary listing on the ASX.

According to CNBC Africa, Gold Fields said it expected $4 billion to $5 billion in corporate, operational and portfolio synergies. Combined annual output would be 4.1 million ounces, with exposure consolidated around Western Australia's Kalgoorlie district, home to Northern Star's Super Pit.

Why Northern Star Walked Away

Northern Star received the proposal on September 14 at an implied 27 Australian dollars per share ($18.95). It was a 22% premium to its September 11 closing price. However, by September 25, a slide in Gold Fields' Johannesburg-listed stock had cut the implied value to 25.19 Australian dollars ($17.68), only a 14% premium.

Both firms have underperformed the sector year to date. Northern Star is down about 4%, while Gold Fields has declined as much as 21.42%. The comparative benchmark, VanEck Gold Miners ETF (NYSE:GDX), is up 8.33% in the same period.

"Gold Fields has sought to acquire one of the world's premier gold portfolios at a price that falls well short of what the Board considers to be its fundamental value and at a highly opportunistic time," Chairman Michael Chaney said in a statement.

Northern Star Flags Deal Risks

With approximately 73% of the consideration in Gold Fields shares, the board objected to diluting investors out of a pure-play, tier-1 Australian exposure and into a higher-risk jurisdictional profile.

"Gold Fields has asked our shareholders to take nearly three-quarters of the consideration in Gold Fields stock, which carries a meaningfully higher jurisdictional risk profile than the exposure they hold today," Chaney said.

The board also argued the approach was timed ahead of near-term value catalysts, including the commissioning and ramp-up of the Fimiston Mill and the arrival of incoming Chief Executive Officer Suresh Vadnagra.

Meanwhile, Gold Fields sought "hard" exclusivity with no fiduciary out, confidentiality, satisfactory due diligence, and regulatory approvals including from the South African Reserve Bank and Gold Fields' own shareholders. Northern Star noted these terms carried material completion risk and prolonged uncertainty.

"This bid feels opportunistic and (we) would agree with the board in rejecting it," said John Ayoub, a portfolio manager at Wilson Asset Management, a Northern Star shareholder.

Gold Fields Keeps Door Open

Gold Fields said it had held discussions with Northern Star over six months with limited engagement, adding that it "remains open to constructive dialogue and continues to seek engagement with the Northern Star Board."

GFI Price Action: Gold Fields shares were down 16.30% at $33.79 during premarket trading on Monday, according to market data.