Xstrata needs persuasive power

Ines Schumacher | Tue, 23 Jun 2009 14:33
[miningmx.com] -- XSTRATA will have to woo South African shareholders if it wants to pursue a takeover of Anglo American, as it’s likely to receive a frosty reception in the southern hemisphere.

A hostile takeover of Anglo American would mean South African shareholders need to invest in offshore assets. This would entail juggling offshore portfolios around since South African offshore assets are limited by law.

A quarter of Anglo American’s shareholder register is South African.

In a strongly worded rejection, Anglo American said late on Monday night that the terms proposed by Xstrata “were totally unacceptable”.

Xstrata responded with surprise. “We are also surprised that the Anglo American board has not seen fit to engage with Xstrata to discuss our proposal in view of the substantial value for both companies' shareholders that would arise uniquely from a merger of the two companies,” the company said in a statement on Tuesday.

Xstrata has not released details on whether it will pursue a hostile takeover of Anglo America. Xstrata CEO Mick Davis is known in the industry for his merger and acquisition experience.

“I don’t know what to make of the situation,” Peter Major from Cadiz Corporate Solutions told Miningmx. He said he was not sure if Xstrata would embark on a hostile takeover bid. “On the one hand, Xstrata doesn’t have enough money for a hostile takeover. But everyone knows Davis is a megalomaniac. He knows his game, better than Anglo CEO Cynthia Carroll I’d expect.”

Major compared the dance Anglo and Xstrata are performing to the one BHP Billiton and Rio Tinto were guilty of not too long ago. “Right now everything is above board and official. One side leaks to the media they want to make a proposal, the other denies it, and back and forth it goes,” Major said.

South African shareholders would lose not only a part of South African mining history, but also the corporate identity they have bought into.

“Anglo American is a grassroots company. It builds assets from the ground up. Xstrata is a merger and acquisition company and has a very different corporate culture to Anglo American. It’s too young to even have an identity,” Major said.

Nomura International emerging market economist Peter Attard Montalto said the biggest hurdle for Xstrata, aside from gaining Anglo American board approval, would be the "South African element".

“Following the government's new draft mining bill which proposes a greater use of black economic empowerment money in mining, the government and regulators may well push for parts of subsidiary stakes to be given up for this purpose," Montalto said.

Trade unions will also add to the frosty reception. The Congress of South African Trade Unions (Cosatu) welcomed Anglo’s rejection of the deal.

“Experience shows that companies which merge always promise not to retrench workers, but invariably do so a few years down the line. So the end result is lost jobs,” Cosatu said in a statement on Tuesday.

The National Union of Mineworkers has added its voice of dissent.

“The only way to cut costs and save money, which is what any merger is about, will lead to retrenchments,” Major said.

Anglo American’s share price reacted to the rejection in early trade on Tuesday, slipping 4% before regaining lost ground and remaining unchanged at midday.