Xstrata ups ante in Anglo hunt

David McKay & Ines Schumacher | Wed, 24 Jun 2009 15:40
[miningmx.com] -- XSTRATA launched the next phase in its attempted merger with Anglo American – rejected earlier this week – issuing details of its approach to the South Africans in an effort to win Anglo American shareholder support.

In a detailed six page letter, addressed to Sir Mark Moody-Stuart, Anglo’s chairman, and CEO, Cynthia Carroll, and dated June 17, Xstrata boss Mick Davis said no premium or cash underpin would be paid in the merger.

He attempted, however, to becalm fears the merger would result in retrenchments, particularly in South Africa, saying no assumptions on job losses had been factored into the group’s proposed synergies and cost savings, calculated by Xstrata to total more than $1bn.

"Xstrata have a track record of streamlining companies and making mines more efficient. It would look to devolve management in the group which is good news for mine staff," Fairfax analyst John Meyer told Miningmx.

Anglo American said earlier this week that it was not interested in a merger with Xstrata. According to the Financial Times, Anglo's board deliberated on the matter for a mere two hours.

Davis fired a shot across Carroll’s bows, however, saying that a properly led company would make the merger compelling.

“In my experience, we have always found that when effectively led, a joint team is able to review identified synergies and unlock incremental value from the combination, ultimately resulting in savings in excess of initial estimates,” Davis said.

Xstrata's merger anticipates a combined board but there was no view yet on who would lead the company. "That would be the subject of discussion. We don't want to presume," said Songezo Zibi, an Xstrata spokesman.

Davis also said he felt Anglo American was fully priced because it had announced synergies and cost savings in 2008 - enough time to reflect in the share price. As a result, there would be no dilution.

Zibi said the aim of the letter was to provide Anglo American shareholders with more information, and to allow them to "make up their minds" on the offer; even perhaps to open further discussion with Anglo's board.

"We want to allow Anglo shareholders to look," said Zibi. "Perhaps then we can engage with the board," he said.

Davis, in his letter, expressed confidence talks would be opened with Anglo. "I feel sure that, in time, Anglo American's board will want to examine comprehensively the merits of this transaction for its shareholders."

Meyer said London circles are speculating Xstrata will have a good go at Anglo American. "My odds are on Xstrata winning this. Xstrata has a lot of Anglo shareholder support. I'm amazed at how many people don't like Cynthia."

South Africa

Davis said the combined Xstrata-Anglo American entity would be headquartered in Switzerland, Xstrata's current abode owing to "... the efficient financial structure provided by Xstrata's Swiss tax residence".

However, the group appears to have anticipated national fears in South Africa about how the merger would affect it saying Anglo American shareholders in South Africa would have their status preserved, without giving details.

"Xstrata needs South African shareholder support for the merger so it probably won't cancel its South African listing. There will always be local sensitivities and Xstrata is working on gaining shareholder confidence," Meyer said.

Davis proposed a "joint approach" to President Jacob Zuma to discuss the merger as well as other officials including the minerals department.

A joint working group would also be established to "... articulate and safeguard the benefits of the proposed combination for South Africa".

In the wake of Xstrata's merger proposal becoming public, on June 21, the South African government, unions and some analysts expressed antipathy for the transaction. The minerals department said it would create an uncomfortable dominance in the South African platinum industry.