Xstrata Drops Lonmin Bid Because of Credit Crisis

Miner Xstrata said on Wednesday it would not make a formal $10 billion takeover offer for No. 3 platinum producer Lonmin because of financing difficulties in the global credit crisis.

"The current lack of clarity and certainty regarding the future availability of credit introduces significant risks into the financing package available to Xstrata," Chief Executive Mick Davis said in a statement.

Xstrata shares closed 1.9 percent lower Wednesday, while Lonmin's shares sank 20.3 percent in European trading.

"Xstrata's share price is off 42 percent since they announced the bid, lagging other diversified peers over leverage/deal completion fears despite it having the best marked to market earnings momentum of the big four in the last three months," he said in a note.

Xstrata said loan terms required it to refinance a substantial portion of the debt within 12 months, a statement said.

"Finalising the bank debt necessary to implement the offer on those terms would not be in the best interest of Xstrata. As a result, Xstrata has no current intention to make an offer for Lonmin."

Banking sources told Reuters last month that Xstrata had approached 22 banks to make commitments for a $15 billion loan to both fund the Lonmin takeover and refinance existing debt.

Xstrata announced a proposed offer for Lonmin, which produces platinum in South Africa, of 33 pounds per share on Aug. 6, but the UK takeover panel issued a ruling requiring it to make a formal bid by Thursday or walk away for six months.

Lonmin had spurned the bid as an opportunistic move that undervalued the firm and its assets.

Xstrata said the turmoil on financial markets, which has hammered its share price, did not change the fundamental outlook for the firm.

"While the current instability of the financial markets has created an environment of great uncertainty, it does not change the fundamental robust nature of Xstrata's cash generative portfolio and profitability."

The firm, the world's fifth biggest diversified mining group by market value, was also still bullish about the medium term prospects for commodity prices, even though it said weakness may persist in the short term.

Lonmin shares initially surged after Xstrata's approach in August, briefly trading above the 33-pound-per-share tentative offer amid rumours of rival bidders, but gradually eroded as doubts surfaced about a formal bid.

They traded at a discount of as much as 42 percent to Xstrata's proposed bid ahead of Wednesday's announcement.

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