HomeBase MetalsScrapped Xstrata-Anglo American deal costs banks millions

Scrapped Xstrata-Anglo American deal costs banks millions

Xstrata’s abandoned
merger with Anglo
costs banks millions
London, England — MININGREVIEW.COM — 16 October 2009 – The fact that mining group Xstrata Plc “’ the world’s fifth biggest diversified mining group by market value “’ has walked away from a proposed merger with unwilling mining giant Anglo American Plc, has cost the two company’s banks tens of millions of dollars in fees, as well as merger and acquisition league-table standings.

Yesterday Xstrata “’ advised by JPMorgan Cazenove, Deutsche Bank and Lazard “’ dropped its nil-premium merger plan in the face of stiff opposition from Anglo American. The deal would have created the world’s biggest producer of zinc and platinum, with a market value of about US$96 billion (R750 billion).

Anglo “’ advised by UBS, Goldman Sachs and Nomura “’ had demanded via UK regulators that Xstrata "put up or shut up". Reuters reports that Anglo’s Anglo-Swiss rival, which was unwilling to pay a premium or go head-to-head with Anglo’s board, now has to walk away for six months.

This outcome spells not just the biggest withdrawn deal of 2009, Thomson Reuters data reveals, but the loss of about US$23.75 million (R190 million) in fees for each of Xstrata’s banks, according to estimates from merger consultancy Freeman & Co. They may now get a payout of perhaps 10% of that figure, Freeman says.

Had Anglo “’ under chief executive Cynthia Carroll and new chairman John Parker “’ warmed to the deal, it could have yielded its banks about US$26.50 million (R200 million) apiece.

It is not clear how much they will be rewarded for rebuffing Xstrata. Because the approach was not formally classed as hostile, Freeman says they may too only get a small fee.

Still, Xstrata has left the door open to re-visiting its merger proposal next year, and could also consider reviving a tilt at platinum producer Lonmin, which it dropped last year.