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Anglo rejects Xstrata merger proposal

Allan Seccombe | Mon, 22 Jun 2009 20:13
[miningmx.com] -- ANGLO American rejected an unsolicited $68bn merger proposal from Xstrata as dilutive to its portfolio of mineral assets, and it said the terms were unacceptable.

Xstrata said on 21 June it had sent a written proposal to Anglo's board to consider a "merger of equals".

On Monday, when Anglo's shares rose strongly in London and Johannesburg, the company's board revisited its strategic options, including a tie-up with Xstrata, given that company's request for it to do so.

"The Board has concluded that a combination with Xstrata would profoundly impact the nature of the Group’s portfolio by significantly diluting Anglo American’s unique exposure to the structurally attractive platinum, iron ore and diamond markets while increasing exposure to nickel and zinc," Anglo said in a statement.

Anglo owns 80% of the world's largest platinum producer, Anglo Platinum, a 45% stake in De Beers, the largest source of rough diamonds, and 68% of Kumba Iron Ore, South Africa's largest iron ore group and one of the world's top six producers.

Xstrata, headed by South African Mick Davis, sees the merger differently, arguing that by combining the two companies it would create operational synergies, a strong growth pipeline and the scale and financial flexibility to fund growth.

Analysts have estimated there could be $700m to $875m a year by merging the two group’s assets.

Anglo reacted cautiously on Sunday, saying the proposal was at a “very preliminary stage.”

Analysts and other market watchers have said unless Xstrata sweeten the offer by including a large premium Anglo’s shareholders were unlikely to support the proposal.

Anglo’s board looked at the respective assets within each group and the growth from their project pipelines. Anglo said it felt its efforts to drive cost savings would deliver benefits to its shareholders.

“The Board has therefore concluded that the strategic case for the combination is unattractive for Anglo American shareholders,” Anglo said.

“Irrespective of this lack of strategic merit, the terms proposed by Xstrata were totally unacceptable.

“In the light of the review the Board of Anglo American has unanimously concluded that the proposed combination with Xstrata would not be in the interest of Anglo American shareholders.”

Anglo's shares closed up 4.3% at R226.10 after rising as high as R242.99, making it the top performer on the bourse. The performance was matched on the LSE, where Anglo ended up 4.6% at Ł16.98.