Xstrata Merger with Anglo American

Xstrata, an exporter of coal used by power plants, on Sunday proposed a merger with Anglo American to gain access to iron ore mines and control of the world’s biggest platinum producer.

“A merger of these two world-class companies with complementary assets is highly compelling” and would provide “enhanced scale and financial flexibility to fund future growth,” Xstrata said in a statement.

The combination with Anglo would allow Xstrata to save money by joining operations. Xstrata, based in Switzerland, has been on an acquisition spree in which the company has spent more than $28 billion in the last six years on nickel, copper, coal and platinum assets. A combination would create a company with a market value of about £41 billion ($68 billion).

Talks are “at a very preliminary stage, and there is no certainty that any transaction will be forthcoming,” Anglo American, which is based in London, said in a statement on Sunday. It did not disclose terms of a possible deal.

Glencore International, a raw materials supplier that holds a 35 percent stake in Xstrata, supports a deal, The Sunday Telegraph reported.

Anglo American rose 2.7 percent, to 1,623 pence in London on Friday, valuing the company at £21.4 billion. The stock has gained 5 percent this year. Xstrata climbed 4.1 percent, to 681 pence, valuing the company at £20 billion. The shares have jumped 88 percent this year, giving it a market value of £20 billion.

Analysts at Citigroup said in a June 18 report that an Xstrata and Anglo American combination “makes strategic sense and could create synergies of up to $750 million per annum.” A merged company “would be a global leader in base metals, platinum, ferrochrome and coal,” they wrote.

Xstrata said in its statement that a “combination would create a premier portfolio of operations diversified across multiple commodities and geographies.”

The deal would also “significantly increase shareholder returns,” it said.

Goldman Sachs and UBS are advising Anglo American, while Deutsche Bank and JPMorgan Cazenove are advising Xstrata.



from the new york times