Anglo confirms Xstrata bid, but no deal yet
June 22, 2009
By Reuters and Bloomberg London
Xstrata, the biggest exporter of coal used by power plants, had made an initial approach to Anglo American to propose a merger, the world's biggest platinum producer said yesterday.
"The board of Anglo American confirms that it has received a preliminary proposal from Xstrata," said the company.
"It should be noted that this situation is at a very preliminary stage and that there is no certainty that any transaction will be forthcoming."
Anglo, which declined to give further details, was responding to an article in the Sunday Telegraph saying that Xstrata chief executive Mick Davis wrote to Anglo last week proposing to open discussions about a deal worth $67.07 billion (R546bn).
Anglo has gained 5 percent this year, valuing the company at $35bn, while Xstrata climbed 88 percent, giving it a market capitalisation of $33bn.
The newspaper report said Xstrata had not yet outlined the terms of any deal.
But it said that commodities group Glencore, Xstrata's 35 percent shareholder, was understood to have been made aware of the approach to Anglo and was thought to be supportive of a deal.
A possible merger "makes a huge amount of sense", said Michael Rawlinson, an analyst at Liberum Capital in London. "The problem is that Anglo American is being very resistant to the idea."
The report said Anglo was being advised by Goldman Sachs and UBS, while Deutsche Bank and JPMorgan Cazenove were advising Xstrata.
The Sunday Times newspaper said Xstrata's chief executive had made the move after pressure from two other big shareholders, Black Rock and Capital Group.
Reuters reported last week that Xstrata was still keen for a marriage with Anglo, but it should nonetheless be braced for another cold shoulder, in spite of vocal matchmaking by some investors.
Xstrata has regarded Anglo as an attractive partner for several years. Talk about such a combination has resurfaced in the wake of a recent iron ore deal between bigger rivals BHP Billiton and Rio Tinto.
But the options are limited for Xstrata, since a hostile takeover, while not impossible, would run the risk of opposition from the government of South Africa, a shareholder in Anglo.
Another potential hurdle for the deal is that the merged entity would have too much control over the supply of platinum.
Xstrata has a shareholding in Lonmin, while Anglo American owns about 80 percent of Anglo Platinum. The companies might have to divest some of their respective stakes in the platinum producers to reduce their control over platinum production. - With staff reporter
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