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Thras Moraitis, executive general manager Xstrata group strategy & corporate affairs

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Xstrata: Bid changed Anglo forever

D. McKay & A. Seccombe | Wed, 08 Jul 2009 18:08
[miningmx.com] -- A PROPOSED merger of equals between Xstrata and Anglo American had changed the South African mining group forever, said Thras Moraitis, executive GM of Xstrata’s group strategy and corporate affairs.

“There’s no doubt Anglo will never be the same,” Moraitis said in an interview. He added that any changes the Anglo management could make would never sublimate the long-term benefits of the Xstrata’s merger proposal.

It has been suggested that Xstrata’s merger of equals proposal, issued on June 21 at a then combined value of $68bn, could galvanise the Anglo American board and provide CEO Cynthia Carroll with enough support to spur her to much-needed company improvements.

Moraitis, in South Africa where he is meeting with Xstrata and Anglo American shareholders as well as media representatives, said the “compelling logic” of the merger would win out in the end. “Anglo shareholders may give her [Carroll] support but she would have to revisit the proposition.”

Xstrata and Anglo American could prosper as self-standing entities but they would not be able to replicate the scale and diversity of a single, enlarged entity, he said.

Xstrata has proposed cost savings of $1bn in merging the two companies, as well as dominance in the platinum, steam coal and copper industries. Anglo, however, almost immediately rejected the proposal.

Moraitis said the speed with which Anglo delivered its riposte smacked of over-defensiveness.

Commenting on the progress of Xstrata’s proposal, Moraitis said the group would engage Anglo shareholders if they wanted. “We don’t want to be aggressive to Anglo shareholders. If they want to talk to us, they can.” Xstrata and Anglo American’s share register has a 10% to 12% overlap.

However, he dismissed the prospect of a cash underpin or premium being added to the merger which has been styled by Xstrata CEO, Mick Davis, as a ‘nil-premium’ offer. “It’s not an option we’re considering now,” Moraitis said, adding that stock exchange listing rules forbade speculation about future developments.

Moraitis also ruled out a joint venture on certain assets between Xstrata and Anglo American. Rio Tinto recently avoided a potential takeover by Chinalco, the Chinese government-owned company, by agreeing to share its iron ore assets with BHP Billiton.

Emotional baggage

Further meetings between Xstrata and the South African government would be scheduled, said Moraitis. The two had met once already to discuss the impact of the proposed merger on South Africa, where he conceded government “was right” to be angered at learning of the proposed merger through the media.

Anglo American is a foundation stone of corporate South Africa and with a market capitalisation of R282bn ($35.5bn) rates as the JSE’s third-largest company behind tobacco company BAT and the R377bn BHP Billiton.

“Xstrata doesn’t have to be the acquirer,” said Moraitis, alluding to the possibility the combined unit would be named Anglo American, retain its JSE listing and accommodate South African shareholders who have limited scope for investing offshore.

“We absolutely want South African shareholders to participate in this company. But we acknowledged on both sides [with government] that this will be a long process.”

“A combined Anglo American and Xstrata would rate as the eighth-largest company on the FTSE 100 Index. Imagine the JSE, with two of the largest mining companies listed there [BHP Billiton is the other] as the source of such mining capital,” he said.