3rd UPDATE: Xstrata Pressures Anglo To Enter Merger Talks
June 24 2009 - 12:19PM
Dow Jones News
Xstrata PLC (XTA.LN) Wednesday said a combination with rival
Anglo American PLC (AAUK) would create savings of more than $1
billion per year as the miner looked to raise pressure on Anglo's
board to reconsider talks on a deal.
Xstrata Chief Executive Mick Davis a week ago wrote to both
Anglo's Chairman and Chief Executive outlining rationale for an
all-share "merger of equals" to create the world's third biggest
miner by market value, a proposition that Anglo rejected on
Monday.
Xstrata Wednesday released publicly a proposal that outlines
cost savings and competitive advantages of combining the two
companies, though a person close to Anglo said it contained nothing
new and that the terms remained unacceptable. "The strategic case
for the combination remains unattractive for Anglo shareholders and
the unchanged terms proposed by Xstrata are totally unacceptable,"
said the person, who asked not to be named.
Xstrata forecasts a merger would save $1 billion a year after
three years, largely from combining coal operations in Australia
and South Africa, copper interests in Chile, streamlining
management and combining corporate functions such as
procurement.
The company also emphasized that the estimate "does not assume
nor envisage" layoffs in South Africa, a touchy issue for the
country's politicians and unions.
Davis added that a combination would allow the new company to
better compete against larger peers BHP Billiton Ltd. (BHP), Rio
Tinto PLC (RTP) and Vale S.A. (VALE) in the rapidly consolidating
industry.
"In future, only the largest and most diverse global mining
groups will generate superior returns for their shareholders by
gaining access to capital, the most attractive resources and the
best talent, while better managing the increasing complexity and
risk associated with our industry," Davis wrote.
U.K.-based Anglo American Monday rejected Xstrata's proposal for
an all-share "merger of equals," saying such a deal is
strategically unattractive and the terms are "totally
unacceptable."
Some analysts and shareholders had expected Xstrata to come back
with a sweetened offer, but Davis resisted those calls for now.
"The proposal bears none of the characteristics of a takeover, in
which a premium would typically be payable," the company said.
Xstrata is hoping public release of the information will
indicate to Anglo shareholders that the proposal is more
complicated and a potential deal is more compelling than initially
indicated by Anglo's swift rejection.
The person close to Anglo noted that the miner had already
considered the proposal for four days prior to Monday's
rejection.
The two companies have a combined market value of about GBP40
billion, and together would be the world's biggest producer of
thermal coal, platinum and ferrochrome, and one of the world's top
producers of copper, nickel, coking coal and iron ore.
Anglo's shares closed up 168 pence, or 10.2%, at 1820 pence,
leading the FTSE100. Xstrata's shares rose 35 pence, or 5.5%, at
675 pence.
Company Web site: www.xstrata.com
-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347;
jeffrey.sparshott@dowjones.com