Xstrata seeks $68 billion merger with Anglo

By Eric Onstad and Kate Holton
LONDON (Reuters) - Xstrata wants talks with mining rival Anglo American about a proposed merger of equals worth about $68 billion, seeking increased scale and cost synergies, Xstrata said on Sunday.
Anglo is likely to resist the attempt by Xstrata to forge a larger mining group better able to compete with bigger competitors BHP Billiton, Vale and Rio Tinto, a source close to the situation said.
Xstrata, which has a market value of $33 billion, said in a statement it recently sent a proposal to Anglo, worth $35 billion.
The approach by Xstrata, which has regarded Anglo an attractive partner for several years, comes after sector No. 1 BHP agreed on June 5 to combine its Australian iron ore operations with those of Rio in a joint venture.
BHP has a market value of $144 billion, Vale is worth $93 billion and Rio $74 billion.
"Xstrata is seeking to engage with the board of Anglo American regarding a merger of equals that would realize significant value for both companies' shareholders," Xstrata said in a statement.
"The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth."
Anglo said in a statement the situation was at a very preliminary stage, but declined to give further details.
A source familiar with the situation said Anglo only received the approach a few days ago.
The source, who declined to be named, said Anglo's board would examine the value for shareholders in a combination with Xstrata compared to the value by remaining independent.
DILUTE PORTFOLIO?
One main issue was the fact that Anglo's assets are higher quality and have longer lives than those of Xstratra, he said.
"Why would you want to dilute that portfolio with lower value assets?" the source said.
Anglo shareholders also might not be keen to share cost savings with Xstrata from a program underway to slash $1 billion through procurement savings and another $1 billion through "asset optimization," he added.
Xstrata would probably be reluctant to make a hostile bid since it would run the risk of opposition from the South African government, a major Anglo shareholder, industry sources and analysts told Reuters last week. Continued...
Source: Reuters