HomeBase MetalsXstrata defends nil-premium mergers

Xstrata defends nil-premium mergers

Mick Davis,
Chief Executive,
London, England — MININGREVIEW.COM — 30 June 2009 – The head of Swiss-based diversified metals and mining group Xstrata – which has made a merger-of-equals proposal to rival mining giant Anglo American – says nil-premium mergers may not be possible without the cooperation of the intended partner.

Anglo has rebuffed the proposal, and investors have been speculating as to whether Xstrata would be willing to offer a premium.

Xstrata chief executive Mick Davis says he has been constrained by lawyers over how much he could say about the Anglo situation. Davis strongly defended the concept of nil-premium mergers as creating value for both sides, but admitted this was not always possible.

“It might not happen very often and you might not be able to do it if the other party doesn’t want to play with you,” he told the Melbourne Mining Club in London. Davis said scale and diversity were key to future value creation in the mining sector. “That lies at the heart of what we proposed,” he added.

Anglo last week strongly rejected Xstrata’s proposal, and Xstrata – the world’s biggest exporter of coal for power plants – added pressure on Anglo after its initial rejection, releasing the details of its merger proposal.

A merger would create a group worth US$72 billion (R576 billion) based on Friday’s closing share prices. A combination of the two firms would create the world’s biggest producer of zinc, platinum, coal for power stations and ferrochrome, and second biggest in coal for steelmaking and copper.