Xstrata’s Davis Waits in Wings for Top Metals Deal

Oct. 16 (Bloomberg) -- Xstrata Plc, which withdrew its 29.2 billion-pound ($47.5 billion) bid for Anglo American Plc, may reprise its attempt to make the world’s biggest metals acquisition. Xstrata’s Chief Executive Officer Mick Davis said yesterday the case for the Swiss company’s proposed merger of equals is "undiminished." The company dropped the offer three months after London-based Anglo rejected the approach, and five days before the Oct. 20 deadline set by U.K. regulators for Xstrata to make a formal bid or walk away for six months. The break may allow Davis to boost output while benefiting from improved commodity prices, said Nick Hatch, an analyst at ING Groep NV in London. Cynthia Carroll, who took over as Anglo CEO in 2007, said her investors will get greater benefit from Anglo’s plan to cut $2 billion of costs by 2011 and develop iron ore, nickel and copper mines in Latin America. "The pressure is now on them to perform," Davis said yesterday in a speech, in which he also talked about his career and the mining industry, at the Centre for Jewish Life, a business club in London. ‘I’ll Still Be Waiting’ "I’m very happy about that and in six months’ time I’ll still be waiting in the wings," he told a lunchtime audience at the club, which organized the event. "We have space now. The focus is on them.

They have to deliver." Xstrata dropped 22 pence, or 2.2 percent, to close at 988 pence in London trading. The shares have almost tripled this year, boosting the company’s market value to 29 billion pounds. Combining with Anglo would be the largest deal yet for Davis, who spent more than $33 billion in six years adding copper output in Chile, nickel in Canada, coal in Australia and platinum in South Africa. Xstrata says a merger would save the combined companies more than $1 billion annually by its third year. The deal would create a mining group that would rival BHP Billiton Ltd., the world’s largest. "It’s a matter of just watching what happens in six months and one day, depending on how the two companies perform comparatively over that time," said Charles Kernot, an analyst at Evolution Securities Ltd. in London. Xstrata Outperforms Xstrata’s shares have outperformed Anglo, rising 59 percent in London since confirming the Anglo bid on June 21. Anglo has advanced 31 percent, giving the company a market capitalization of 29.2 billion pounds. On that valuation, Xstrata’s proposed merger would surpass London-based Rio Tinto Group’s $38.1 billion acquisition of aluminum maker Alcan Inc. in 2007. Jon Simmons, an Anglo spokesman in London, and Claire Divver, an Xstrata spokeswoman in London, declined to comment. In six months, Zug, Switzerland-based Xstrata’s balance sheet "will be stronger than it is now and they will have increased cash flows," said Paul Cliff, an analyst at Nomura Securities Co. Ltd. in London. He’s suspended coverage of both miners because Nomura advised Anglo on the bid. "The only thing left for them to resolve is whether it makes sense for them to offer a premium," he said. Davis, 51, a South African, joined Xstrata in 2001 when the company was a fraction of its current size. Xstrata sold shares in London in 2001, bought Australian copper and zinc producer M.I.M. Holdings Ltd. in 2003 and Canadian nickel producer Falconbridge Ltd. three years later. Lonmin, LionOre Not all of Xstrata’s takeover bids have worked out.

The company abandoned a hostile bid for platinum producer Lonmin Plc in October 2008 after metal prices plunged. Xstrata withdrew from bidding for Australia’s WMC Resources Ltd. in 2005 after being trumped by BHP, and was outbid for nickel miner LionOre Mining International Ltd. by Russia’s OAO Norilsk Nickel in 2007. Founded by Ernest Oppenheimer in 1917 in Johannesburg, Anglo grew to become South Africa’s biggest company during white rule as sanctions against apartheid limited its ability to expand outside the country. Anglo mines copper, coal and zinc in countries including Brazil, Venezuela and Australia. The company controls Anglo Platinum Ltd., the world’s biggest producer of the metal, and owns a 45 percent stake in De Beers, the largest diamond company. Carroll said in July that Xstrata’s approach was "a distraction." The company’s growth plans include the Minas Rio iron ore project, which could produce as much as 80 million metric tons a year of the steelmaking raw material. "Anglo’s management have been given another opportunity by their shareholders to deliver," Nomura’s Cliff said. "If they do not do that, Xstrata could easily come back after six months if the Anglo shareholders lose patience."

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