Anglo American yesterday responded to Xstrata's merger proposal (See: Xstrata proposes $68 billion merger deal with Anglo American) by saying that the merger deal terms were ''unattractive'' and the proposal on the whole was, ''totally unacceptable.''
Anglo American said, ''The company board has regularly reviewed its strategic alternatives, including the rationale for a combination with Xstrata, and the board concluded 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 nickel and zinc.''
London-based Anglo American, a global leader in mining with diverse mining assets said that the main decisive factor was regard to the comparative quality and life of the producing assets and the growth to be delivered from the respective project portfolios of the two companies.
Xstrata, one of the world's largest diversified mining groups and a leading producer of coking coal, nickel and zinc said that it was disappointed that the Anglo board chose to reject the merger even without attempting to discuss the proposal.
The Anglo board also believed that since the company had recently undertaken $2 billion in cost cutting measures, the merger would not deliver substantial further cost savings for the benefit of Anglo American shareholders.
The statement from Anglo, which concluded saying, ''The strategic case for the combination is unattractive for Anglo American shareholders. Irrespective of this lack of strategic merit, the terms proposed by Xstrata were totally unacceptable,'' has practically shut the door on Xstrata for any further bid on the London-based miner with significant exposure in South Africa.
According to analysts, the merger proposal would not have been of any interest to Anglo's shareholders since there was no premium attached, where a 30 per cent premium is the norm in any mining company acquisitions.
With Anglo's market capitalisation of $35 billion being slightly bigger than that of Xstrata's at $33 billion, a premium of 37 per cent would have been justified since Anglo's assets are far more valuable and have a longer life than those of Xstrata, say analysts.
Moreover, they point out that in an equal merger, there is ambiguity as to who will control the merged company, the fast-moving Mick Davis, Xstrata chief executive or the conservative chief executive of Anglo, Cynthia Carroll.
The South African government, concerned about the loss of jobs and the potential monopoly in certain metals, had called the top management of Anglo for talks and has also played a key role in Anglo rejecting the merger.
South Africa's mining minister Susan Shabangu told reporters in Cape Town yesterday that the merger would create a monopoly and such monopolies cannot be promoted in South Africa.
But Xstrata's merger proposal with Anglo American has opened up the possibility of other big mining companies to make a counter lucrative offer to either of the two miners.
Reuters reported that China state-owned Chinalco is rumoured to have shown an interest in acquiring Anglo, and the market gossip was a bid from Chinalco at 2,200 pence per share for Anglo American, which would value the London-based miner at $45.6 billion.