Banks lose as Xstrata 'shuts up'

Reuters | Fri, 16 Oct 2009 09:03
[miningmx.com] -- Xstrata Plc's walking away from a proposed merger with unwilling target Anglo American has cost the two miners' banks tens of millions of dollars in fees, as well as merger and acquisition league-table standings.

On Thursday, Xstrata, advised by JPMorgan Cazenove, Deutsche Bank and Lazard, dropped its nil-premium merger plan in the face of stiff opposition from Anglo American.

The deal would have created the world's biggest producer of zinc and platinum, with a market value of about $96bn.

Anglo, advised by UBS, Goldman Sachs and Nomura, had demanded via UK regulators that Xstrata "put up or shut up". Its acquisitive Anglo-Swiss rival, which was unwilling to pay a premium or go head-to-head with Anglo's board, now has to walk away for six months.

This outcome spells not just the biggest withdrawn deal of 2009, according to Thomson Reuters data, but the loss of about $23.75m in fees for each of Xstrata's banks, according to estimates from merger consultancy Freeman & Co.

They may now get a payout of perhaps 10% of that figure, Freeman says.

Had Anglo, under chief executive Cynthia Carroll and new chairperson John Parker, warmed to the deal, that could have yielded its banks about $26.50m apiece.

It is not clear how much they will be rewarded for rebuffing Xstrata. Because the approach was not formally classed as hostile, Freeman says they may too only get a small fee.

One bank that will relish the deal's demise is Morgan Stanley, which is a key adviser to Rio Tinto and was not on either side of this takeover tussle.

Rio itself abandoned a deal with China's Chinalco earlier this year in favour of a rights issue and joint venture with BHP Billiton.

With two and a half months of the year left, the withdrawal of $42.5bn of league-table credit from rivals means Morgan Stanley cements its lead in the global mergers and acquisitions (M&A) standings, and helps push it to the number one spot for European M&A.

Globally, Morgan Stanley is credited with $529.4bn of announced M&A, against Goldman, in second place with a revised $452.9bn. If Morgan Stanley can maintain that lead until year-end it will break Goldman's 12-year reign as the world's highest-ranked merger adviser.

Deutsche, UBS and Lazard have all slipped a place in the global M&A rankings after the deal's withdrawal.

Still, Xstrata left the door open to revisiting its merger proposal next year, and could also consider reviving a tilt at platinum producer Lonmin, which it dropped last year.