Xstrata offers Anglo 'merger of equals'

David McKay | Sun, 21 Jun 2009 16:10
[miningmx.com] -- THE possibility that South Africa could lose its iconic blue chip, Anglo American, a R291bn mining behemoth, came a step closer today when the group confirmed Xstrata, a rival, had approached it with "a preliminary proposal".

Xstrata confirmed in a separate announcement that it sent a written proposal to Anglo's board asking it to consider "a merger of equals of the two companies".

"Xstrata believes a merger of these two world-class companies with complementary assets is highly compelling," it said in a press statement.

"The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth," it said.

Xstrata added it had already investigated synergies between the two groups that could provide value to shareholders neither company could achieve on their own.

In its somewhat more reticent statement, Anglo American said it noted recent press speculation in the UK that Xstrata had tabled a merger offer a week ago. It added, however, that the proposal - which it did not say was a merger offer or takeover - was "at a very preliminary stage".

"The Board of Anglo American confirms that it has received a preliminary proposal from Xstrata which may or may not lead to a transaction involving the group," it said today.

"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. A further announcement will be made if and when appropriate." Xstrata also said it could not guarantee completion of a deal.

Cynthia Carroll, Anglo American CEO, is said to be under pressure after shareholders voiced concern it had recently passed the dividend and perhaps overpaid for iron ore assets in Brazil.

However, in an interview with Miningmx earlier this month, Carroll said there were no plans to lose its independence.

“You never know the future, but Anglo has the longest life resources, and excellent opportunities,” she said.

Carroll also told Miningmx that the group was well financed and was hopeful that with an eventual improvement in the metal price, the group was well positioned to take advantage.

“We’ve never sold more iron ore than now,” says Carroll, who added that the cost of iron ore production in China is leading domestic output downwards and providing opportunities to exporters. Platinum jewellery sales are “extremely high”, offsetting the downturn in autocatalyst demand. And “met [metallurgical] coal has been pretty strong for us”.

The Times, however, reported last week that shareholders were disgruntled with Carroll's management style.

“There are three reasons we sold, one shareholder told The Times of having divested of Anglo shares: "... Cynthia, Cynthia and Cynthia. It's nothing personal. We just don't think she has done a good job.”

Reaction

Liston Meintjes, head of Abercrombie Asset Management, said that the world was prepared for amalgamation and that you "couldn't blame" people for looking at potential bargains.

"This is a fantastic time to buy, and the right time to look at one another's assets, but you've got to wonder whether anybody has the finance to do an outright merger."

Peter Major, an asset manager for Cadiz Corporate Solutions, said a bid by Xstrata for Anglo would present Xstrata shareholder, Glencore, fan opportunity to fully exit the group. "These guys are pretty wealthy in their own right and wanted to get out a little earlier in an Xstrata/Vale deal.

"So a merger of Anglo with Xstrata would certainly provide them with the perfect exit strategy," he said.

"Personally, I don't think it should happen. But the Anglo shareholders are such a diverse bunch," he said.

"I wouldn’t trust them [Anglo shareholders] as they are too short-term in their outlook, but maybe Cynthia feels that she is under pressure to do something to keep her career," he said.