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Mining group Xstrata gave up pursuit of rival Anglo American on Thursday due to "value" issues after many Anglo shareholders rejected its merger of equals proposal and demanded a premium.
Xstrata [XTA-LN Loading... ()] said it still believed in the strategic rationale of a merger with Anglo and left the door open but was being "disciplined". UK regulators issued a "put up or shut up" order last week compelling Xstrata to either make a formal offer by Oct. 20 or walk away for at least six months.
"Our decision not to proceed with an offer before the deadline imposed by the UK Takeover Panel reflects our disciplined approach to growth and our focus on the value proposition for Xstrata's shareholders in a merger," Chief Executive Mick Davis said in a statement.
"We continue to assess a range of alternative growth options, in full recognition that transactions of this nature often take time and patience to mature." On Monday a top-10 shareholder in Xstrata told Reuters the company had indicated it would drop the merger plan for now.
A combination of Xstrata and Anglo American [AAL-LN Loading... ()] would have created the world's biggest producer of zinc, platinum, coal for power stations and ferrochrome, and the second-biggest company in coal for steelmaking and in copper.
Analysts said Xstrata, saddled with $13.1 billion of debt, has insufficient financial muscle to offer the premium of up to 30 percent demanded by some Anglo shareholders.
Xstrata had said a merger would benefit both sets of shareholders with estimated synergies of at least $1 billion.
Xstrata also said that bringing together the fourth and fifth biggest diversified mining firms by market value would create a group better able to compete against rivals BHP Billiton [BLT-LN Loading... ()] and Rio Tinto [RIO-LN Loading... ()].
Anglo's new Chairman John Parker did a round of consultations with shareholders about Xstrata's "nil premium" merger proposal, which the firm said was "totally unacceptable" on June 22, one day after Xstrata unveiled the plan.
A source close to the situation said earlier this week that Parker, a veteran industrialist who has chaired eight other firms, had proved to be a key factor in the bid battle since taking the top post at Anglo on August 1.
Some institutional investors who had been leaning towards supporting Xstrata, were swayed by Parker to give Anglo more time to conclude its own restructuring programme that is due to cut costs by $2 billion by 2011.
"I think he has changed the dynamics entirely. The institutions know John very well and they understand that he is a man who delivers for the institutions," the source said.
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