Xstrata puts in a bid for Anglo American
Merger would create third-largest mining firm
Tom Stundza -- Purchasing, 6/22/2009 10:13:04 AM
Anglo American has received a weekend merger approach from rival mining group Xstrata. The combination would create the world's third-largest mining group with vast holdings in metals and diamonds. Analysts estimate a combined company would have about £41 billion ($67.65 billion) in revenue this year. But a deal is far from certain because of different management styles, limited cost savings from a marriage, a suggestion that the smaller firm's management run the combined firm and possible interference by major shareholders.
Analysts at Citigroup say the combined entity would be the world leader in base metals (second in copper, first in zinc and fourth in nickel), the world's largest producer of platinum, thermal export coal and ferrochrome, and a top-five producer of iron ore and coking coal. London-based Anglo American is one of the world's largest diversified mining and natural resource groups. It has a market value of about £21.4 billion, or $35.3 billion. Xstrata, a global diversified mining group based in Zug, Switzerland, is worth about £20.1 billion, or $33.2 billion. Both companies trade on the London Stock Exchange.
MarketWatch.com points out that Anglo American and Anglo-Swiss Xstrata already have joint ventures, and have circled each other in the past. Dow Jones Newswires says a combination's market value of more than $68 billion would displace Anglo-Australian Rio Tinto Group as the world's third-largest miner after Anglo-Australian BHP Billiton and Brazil's Vale, formally Companhia Vale do Rio Doce.
Any deal faces high hurdles. Xstrata is expected to propose a deal that would put its management, led by CEO Mick Davis, more in control of the combined company, which would be equally owned by both companies' shareholders. Any such desire by Xstrata to take the lead in managing the new company will likely reduce Anglo's enthusiasm.
Beyond that, a deal could face political headwinds in South Africa, where Anglo has significant operations. Analysts at BAS-ML in London say any deal is clouded by "political flux and uncertainty in South Africa," which owns a large chunk of Anglo American through pension fund investments. Pretoria already has been insisting that changes be made in Anglo American's upper management.
A further complicating factor is Glencore International, the trading company that owns a big stake in Xstrata. Glencore would likely want the right to market key commodities from a combined Xstrata-Anglo, a demand that helped derail a recent takeover bid for Xstrata from Vale.
Now Playing:
Xstrata drops bid for Anglo American
10/18/2009Xstrata drops bid for Anglo American
10/16/2009Copper-nickel merger is a mess
08/02/2006
