The UK Takeover Panel has given a 20 October deadline to Xstrata to either make a formal offer for Anglo American or shelf the deal for six months
London-based diversified miner, Anglo American had approached the UK Takeover Panel on Tuesday, 29 September for a "put up or shut up" bid deadline of Xstrata's unsolicited merger offer.
The UK Takeover Panel, an independent body set up to supervise and regulate takeovers and mergers, has now set a 20 October deadline expiring at 5:00 pm for Xstrata to either announce a firm intention to make an offer for Anglo American under Rule 2.5 of the Takeover Code or announce that it does not intend to make an offer and walk away for six months.
"By 20 October, Xstrata will have had four months to either announce a formal offer or withdraw and Anglo American believes it is in the interests of the Group and its shareholders that this period of uncertainty is brought to an end" Anglo said in a statement.
Switzerland-based Xstrata, developed from a small player into one of the world's largest diversified mining groups in recent years through a series of acquisitions with operations spread over 19 countries in five continents, had sent a proposal in June to arch-rival Anglo American plc seeking its consideration for a possible $68- billion "merger of equals". (See: Xstrata proposes $68 billion merger deal with Anglo American)
The world's largest exporter of thermal coal, Xstrata said that the merger would create one of the biggest natural resources companies in the world with a combined value of around $68 billion that would be able to compete with larger rivals like Anglo Australian miners BHP Billiton and Rio Tinto as well as Cia Vale do Rio Doce (Vale) of Brazil.
But the Anglo American board led by chief executive officer Cynthia Carroll rejected the merger offer since it felt that a combination with Xstrata would profoundly impact the nature of the company's portfolio by significantly diluting its lucrative platinum, iron ore and diamond markets while increasing exposure to Xstrata's low- value nickel and zinc operations.'' (See: Anglo American rejects Xstrata's $68-billion deal)
Moreover, the board said that Anglo's assets have a longer life and are considered more valuable than Xstrata's.
Tumbling commodity prices due to the global economic downturn has made Anglo struggle to keep its underperforming mines afloat. High operating cost and to weather the global recession, Anglo had recently undertaken $2 billion in cost cutting measures.
Anglo, the world's biggest platinum producer, reported in February a decline in its underlying profit to $4.36 a share in 2008, missing the $4.82 average expected by analysts. Full-year net income fell to $5.2 billion from $7.3 billion a year earlier. (See: Mining giant Anglo American reports 29 per cent profit drop, to cut 19,000 jobs)
Anglo American announced that it would cut 19,000 jobs by the end of 2009 and look for further cost-cutting opportunities. The miner had about 100,000 people on its payroll in 2007, with three-quarters in South Africa.
In July, Anglo American bailed out its subsidiary Anglo Platinum in which it owns an 80-per cent stake, which had been hit by the global collapse in the price of platinum by lending it £1.6 billion. (See: Anglo American pumps £1.6-billion into platinum subsidiary)
Anglo American also has an $11-billion debt, accrued mainly due to the overpriced, height-of-the-commodities-boom acquisition of MMX Minas, an acquisition, criticised by Anglo's investors in the past.
In August, the Xstrata reported a 77-per cent fall in net profit to $643 million in first-half, down from $2.77 billion a year earlier and revenue decline of 41 per cent to $9.54 billion from $16.09 billion. (See: Despite profit drop, Xstrata pursues Anglo American merger)
Xstrata, led by chief executive officer Mick Davis, made a successful $7-billion rights issue in March to repay a net debt of $3.7 billion. But it still has a net debt of £7.5 billion.
Considered as the most aggressive mining company in acquisitions, Xstrata has made 16 acquisitions worth $33 billion since 2003 under the helm of Davis, appointed as CEO in 2001 soon after the merger of BHP and Billiton, where Davis played a key role and was considered the architect of the deal in his capacity as Billiton's chief financial officer.
Davis is now seeking to survive in the aftermath of the global economic crisis by combining Xstrata's and Anglo American mines located nearby in Canada, Australia and South Africa, thus bring in savings of $1 billion annually.
Analysts feel that Xstrata will move away from acquiring Anglo American for the time being and make a renewed bid when the commodities market improves, thus giving it enough time to raise enough money to add sweetener to its offer, which currently has no incentive for Anglo's shareholders.