Deals and IPOs

Brazil Miner Vale Raises Bid for Xstrata: Source


Brazilian miner Vale has raised its bid for rival Xstrata by 17 percent to more than $89 billion, and a formal offer is expected in the coming days, a source with direct knowledge of the merger talks said Thursday.

The source, who asked to be unnamed, said the company has raised its bid to 47 pounds a share from 40 pounds. Xstrata, an Anglo-Swiss miner, declined to comment on the matter.

Vale has secured bridge loans of $50 billion from a pool of banks.

A second source close to the negotiations said Vale President Roger Agnelli and the company's financial director, Fabio Barbosa, were still finalizing takeover talks in London at Xstrata's offices.

Any formal offer that is presented Xstrata will need to be presented to Vale's board for approval.

News of the new offer comes two days after Vale secured agreements with Asian and European steelmakers to raise its iron ore prices by 65 percent from 2007.

Iron ore accounts for 40 percent of Vale's cash flow.

Analysts estimate that the increase in ore prices will result in an additional $10 billion of annual revenue for Vale.

UBS Pactual analysts said recently that Vale's debt-to-cash flow ratio was sufficiently comfortable that the company could raise its bid for Xstrata to 48 pounds a share without seriously hurting its investment-grade status.

A marriage of the two firms would diversify Vale from dependence on iron ore by boosting its presence in copper and nickel. The combined firm would be the world's largest nickel producer, surpassing Russia's Norilsk Nickel.