Brazil's government opposes a plan by mining giant Vale to buy Swiss-based rival Xstrata, a senior official said Thursday, pouring cold water on a deal that analysts said could top $100 billion in one of the biggest mergers ever.
The government intends to instruct BNDESPar, the investment holding company of the state development bank, and Previ, the pension fund for Banco do Brasil, to vote against the deal, according to a close adviser to one of President Luiz Inacio Lula da Silva's cabinet members.
BNDESPar and Previ are members of the group of Vale's controlling shareholders and hold seats on the company's board of directors.
High-ranking government officials believe the deal is expensive, too complicated and not in Brazil's interest, the business daily Valor Economico reported Thursday. It cited an unnamed cabinet member who argued that the timing of the deal is not right, given the high cost Vale would have to pay for Xstrata.
The report also said the government was against the way Vale planned to structure the deal, since a large amount of voting shares would end up in foreign hands. The government views Vale, a former state-owned company and one of Brazil's largest exporters, as a strategic asset that should remain Brazilian, Valor said.
No one at the presidential palace was immediately available to comment. BNDESPar would not confirm or deny the report, referring to Vale. Vale said it was "premature to express opinions" as it had no information about the alleged government opposition to a bid for Xstrata.
"Previ and BNDESPar are in the Vale control group and they have a big weight there, so I think they have the possibility to veto the deal," said Rodrigo Ferraz, an analyst with Brascan bank.
"Now whether that's the best thing to do, I'm not sure. An Xstrata acquisition is a golden opportunity, although it is also a big risk," he said.
Xstrata shares closed 1 percent higher on Thursday in London. Vale stocks opened around 4.2 percent higher in Sao Paulo at 42.3 reais.
Vale, the world's largest iron ore producer, said on Monday it was in talks with Xstrata about a takeover.
But Vale cautioned that the current turbulence in global financial markets posed a significant hurdle. Another Brazilian newspaper, O Estado de Sao Paulo, reported on Thursday that Vale was having trouble obtaining financing for the deal because of the adverse market conditions.