MINER Xstrata has given up its pursuit of rival Anglo American, it announced yesterday, leaving Anglo to push ahead with its own restructuring plan and raising questions about whether Xstrata will revisit former target Lonmin.
Xstrata said it has dropped its merger of equals plan for Anglo that would have created a group with a market value of $96-billion after refusing demands from Anglo shareholders that it pay a premium.
Xstrata said it still believed in the strategic rationale of a merger with Anglo and left the door open to a future bid but was being "disciplined". Anglo American responded matter-of-factly to the announcement.
The resources giant, which has fervently opposed the suggestion of a merger, said only that it noted Xstrata's statement that it has withdrawn its proposal for a combination of the two companies.
Analysts said Xstrata, saddled with R95,8billionof debt, had insufficient financial muscle to offer the premium of up to 30percent demanded by some Anglo shareholders.
"The hostility with which the Anglo board views Xstrata meant no deal was possible without a material transfer of value from Xstrata to Anglo shareholders," said Michael Rawlinson of Liberum Capital.
"The pressure is now on Anglo's chairman Sir John Parker to deliver the promised changes."
Parker, who took office in August, convinced several major Anglo shareholders who had been wavering on Xstrata's proposal to give Anglo more time to deliver its promised R14,5billion in cost cuts by 2011, a source close to the situation had said.
"I think he has changed the dynamics entirely. The institutions know John very well and they understand that he is a man who delivers," the source said.
Anglo also must decide on whether it needs to inject more capital into under-performing units Anglo Platinum and 45percent owned diamond producer De Beers, analysts said.
United Kingdom regulators issued a "put up or shut up" order last week, compelling Xstrata to either make a formal offer by October 20 or walk away for at least six months.
"Our decision not to proceed with an offer before the deadline imposed by the UK Takeover Panel reflects our disciplined approach to growth and our focus on the value proposition for Xstrata's shareholders in a merger," chief executive Mick Davis said in a statement.
"We continue to assess a range of alternative growth options, in full recognition that transactions of this nature often take time and patience to mature."
As Xstrata looks at possibilities, it will have to decide whether to return to Lonmin, the world's third biggest platinum producer, after it dropped a R73billion bid amid the global downturn. - Reuters and I-Net Bridge