Mining Journal > Finance > Xstrata may struggle to fund hostile Anglo bid

Finance

Xstrata plc may struggle to fund a hostile bid for Anglo American plc after the rejection of its offer of a “merger of equals” by Africa’s largest mining company, analysts at Barclays plc and Liberum Capital Ltd, said.
     
The value of cost cuts and other advantages from a merger would be wiped out by the extra money Xstrata would have to pay to take over an unco-operative Anglo, Barclays analyst Christopher LaFemina wrote in a note e-mailed today. Anglo said yesterday that Xstrata’s terms were “totally unacceptable”.
    
“We struggle to see how an acquisition of Anglo at a premium would create value for Xstrata shareholders,” LaFemina wrote. “Acquiring South Africa’s national champion in the mining industry would likely face some political obstacles.”
    
Xstrata chief executive Mick Davis, who led US$27 billion-worth of acquisitions in six years to add copper, nickel, coal and platinum assets, may put his case directly to Anglo’s investors in the hope they will influence the board, rather than boosting the offer.
    
“We see only a very low chance of a hostile premium bid now,” said Michael Rawlinson, head of mining, resources and energy at Liberum in London. “They don’t have many options but to take their case direct to Anglo shareholders.”
    
Xstrata’s investors may have a “lack of appetite” for a hostile bid because of concern on how to fund the deal, he said.
    
The Zug, Switzerland-based company faced opposition from some stockholders when it raised £4.1 billion (US$6.7
billion) in a rights offer that also involved buying coal assets from Glencore International AG, its largest investor.

Xstrata, the largest exporter of power-station coal, said yesterday it was “disappointed” by Anglo’s rejection. Company spokeswoman Claire Divver couldn’t immediately comment, and Anglo spokesman James Wyatt-Tilby declined to comment.
    
A merger would have the effect of “significantly diluting Anglo American’s unique exposure” to platinum, iron-ore and diamond markets, Anglo said yesterday.
    
The combination of Anglo and Xstrata would have sales of more than US$54 billion, based on 2008 figures, almost matching those of London-based Rio Tinto. Melbourne-based BHP Billiton had sales of US$63.7 billion in the year to December 31.
    
Anglo controls Anglo Platinum Ltd, the world’s biggest producer of the metal, and owns a 45% stake in De Beers, the largest diamond company. It also has copper, coal, zinc and other mines in 45 countries.
    
Xstrata bought Canadian nickel producer Falconbridge Ltd for US$18.1 billion in 2006. The Swiss company broke off talks to be bought by Vale SA, the world’s biggest iron-ore exporter, in April last year after the companies couldn’t agree on terms.