Premium on lips of Anglo shareholders

David McKay | Thu, 09 Jul 2009 18:31
[miningmx.com] -- XSTRATA's Ł40bn merger of equals with Anglo American was dead in the water, according to TimesOnline which reported on Thursday that up to half of Anglo’s shareholders wanted a premium before considering the offer.

South African shareholders, most of whom asked to remain anonymous, agreed Xstrata should be offering a premium because Anglo’s assets were considered superior to those owned by Xstrata.

Thras Moraitis, executive GM of Xstrata’s group strategy and corporate affairs, said however it wasn’t possible to confirm the TimesOnline report. “We’ve seen shareholders in South Africa over the last few days on their request.

“They have been focused and keen to maximise value in Anglo. They have been interested in what we have said. But they want to see what the transaction is and will then make an assessment”.

Shareholders confirmed they had held initial background talks with Xstrata and that a premium was possible, expected even. “We haven’t got so far as to talk terms,” said one shareholder who had met with Xstrata officials. “It’s a case of watch this space.

“But we believe that a 30% to 40% premium would be required without Xstrata having to absorb excessive dilution,” he said.

Including synergies, estimated by Xstrata to top $1bn/year, dilution could be reduced to about 5% even with a 40% premium, one shareholder said. “And if yet more synergies could be delivered, the deal would be neutral for Xstrata shareholders,” he said.

According to the TimesOnline, this would require Xstrata to pay upwards of Ł10bn to meet Anglo American shareholder expectations, funds that it did not have owing to net debt of Ł7.5bn.

But some analysts didn’t agree. Liston Meintjes of Abercrombie Asset Managers said Xstrata could simply adjust the share ratio.

“You’d have to look at when the two companies had equal market value a couple of weeks ago and then say that if the share ratio was, say, 3:1, then could it perhaps be adjusted to a 4:1 ratio,” he said.

Adrian Saville, chief investment officer of Cannon Asset Management, didn’t think a premium was a necessity.

“To say Xstrata shareholders should pay a premium because Anglo has high quality assets is a half argument as the assets are only high quality if they are being managed properly. At the moment, those assets are not being managed well.”

Glencore’s role

“It depends how badly Xstrata wants to do this deal,” said another South African asset manager. “But at the end of the day, it’s Glencore that pulls the strings.”

Glencore, which owns 34.45% of Xstrata and has two representatives on Xstrata’s board, buys and trades metals and had used Xstrata as a vehicle for acquiring new trading contracts, the asset manager said.

“Xstrata has acquired huge assets for Glencore which have not been accretive to shareholders,” he said.

The fact Glencore had offered assets when following Xstrata’s $5.9bn rights issue recently while other shareholders parted with cash, demonstrated how the metals trader had an atypical shareholder relationship with Xstrata, he said.