Does Anglo need an Xstrata?

[] — The suggestion a merger between Xstrata and Anglo American is one of equals is somewhat difficult to swallow. Talking to analysts over the weekend, what Xstrata’s bid amounts to is an opportunistic maneouvre by Mick Davis, Xstrata CEO, and his major shareholder Glencore whose main backer, Ivan Glasenberg, is nearing retirement and needs an exit strategy.

Anglo’s Cynthia Carroll is currently weakened if reports from London are to be believed. For some reason, her shareholders would prefer a different leader partly because she passed the dividend, but also because it’s thought in Minas-Rio, a Brazilian iron ore prospect, she bought an asset near the top of the market (couldn’t the same be said of Xstrata?).

It’s too early to judge Carroll on Minas-Rio, but the dividend was a psychological blow to shareholders, although one hastens to add it was hardly unprecedented in the international market.

Nonetheless, Carroll is not thought de rigeur at present and Davis is seeking to capitalise on Anglo shareholder antipathy for Carroll by setting himself up as an alternative.

There’s no doubting Davis is a bright spark of the highest order. His meteoric career, helping Brian Gilbertson build BHP Billiton and then setting about assembling a new mining house out of Xstrata, is nothing short of breathtaking. But to assume the quickly built Xstrata is somehow of the magnitude of Anglo is, perhaps, asking for a leap of imagination.

In Anglo Platinum, Anglo has the finest platinum reserves in the world. In De Beers, it has unparalleled diamond market influence. Xstrata has the completely untested Eland Platinum and some other minor platinum assets in South Africa. It has no diamonds. In Anglo Coal and the Australian assets, Anglo has coal worthy of anything in Xstrata but it also has Kumba Iron Ore, and stakes in Copebras, Los Bronces, a $1.7bn copper prospect in Chile, and Collahausi.

In comparison, Xstrata bought assets at levels that though pricey were done so in a market climbing northwards. The market has now turned which puts Xstrata in a slightly less sexy position. The premium it paid for Eland Platinum – a total of $1bn – is less rosy now the platinum market has retreated. So in this merger of equals, just what is Xstrata bringing to shareholders Anglo American doesn’t already have?

Back to the management issue. Mick Davis, atop of Anglo, is a mind boggling thought and that’s how he’s hoping to bring together the two companies. He’s hoping his vision will do more for Anglo than Carroll’s, a relative newcomer to the CEO game.

From an Xstrata point of view, Anglo represents a way forward, and perhaps an opportunity to start weeding out assets currently under its hood that no longer make sense.

For Glencore, which now owns 34.45% of Xstrata, merging with Anglo may allow it the chance of exiting from the Swiss group in a way it wasn’t able to achieve when in April 2008, the takeover by Vale foundered.

Then there are the shareholders. I’m sure Xstrata’s will be favourable. But will Anglo shareholders plump for Davis? They will if it’s short-term gains they’re after. But in the longer term, is unseating Carroll worth a merger with Xstrata?

Merger of equals? I think that’s pushing the case somewhat. Xstrata needs Anglo, but I’m not sure Anglo needs Xstrata.