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Xstrata shelves Lonmin takeover bid Posted: Wed, 01 Oct 2008 [miningmx.com] -- FINANCING concerns led to Xstrata canning its proposed $10bn takeover bid for Lonmin, but the resources giant hasn't walked away from Lonmin just yet. Xstrata was obliged under UK takeover rules to either make a formal offer by Thursday or walk away. Xstrata has decided not to make that offer. an offer for Lonmin. “Today’s announcement is made against a background of extreme volatility and uncertainty in the financial markets," said Xstrata CEO Mick Davis. The decision comes as no real surprise, with the market having factored Xstrata declining to pursue Lonmin into the latter's share price over recent weeks. Lonmin's shares plunged on the news. It was last trading down 20% at £18.14 per share, pulling back from a morning low of £16.01. Investors in Xstrata were delighted at the decision, sending the diversified miner's shares up eight percent to £18.60, shy of of its morning high of £19.05. Xstrata hasn't entirely walked away from Lonmin, snapping up 22 million shares in the platinum company for £440m at an average of £19.79 per share. This takes its total holding in Lonmin to 24.9%, making it very difficult for someone else to take the company over. Xstrata is unlikely to advance beyond that 24.9% stake just yet because that will only trigger an offer to minorities. Xstrata has spent £991m buying its stake in Lonmin. "We continue to believe the medium and long-term fundamentals of platinum are robust and that the structure of the platinum industry remains attractive," Davis said. Xstrata has secured a three-year $5bn multi-currency revolving loan facility with a group of its relationship banks. "The new facility will be used to refinance existing debt and for general corporate purposes and underlines Xstrata’s robust financial position and flexibility," he added. The Xstrata decision to hold off a formal bid for Lonmin at this stage was a good one, said Simon Toyne from Numis Securities. "For now, we believe this removes a significant source of uncertainty and will allow Xstrata to begin to outperform given its relatively low exposure to steel making raw materials," said Toyne in a note. "Xstrata remains our clear top pick in the sector and we believe a meaningful portion of its recent underperformance relates to 'Lonmin risk'." Numis thinks there is great downside risk for the ingredients to make steel relative to forecasts. "The current lack of clarity and certainty regarding the future availability of credit introduces significant risks into the financing package available to Xstrata, in respect of the requirement in the proposed financing terms to refinance a substantial portion of the debt funding within 12 months," Davis said. Analysts suggested that Xstrata might revisit its decision at a later stage, but it cannot make a lower offer than the £33/share offer it proposed on 6 August, which caused the Lonmin share price to leap by 50% on the day. Click Here to subscribe to our daily newsletter
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