A tale of two big mining industry takeovers: one with a realistic result, the other where fairyland still rules.
The realistic one was Xstrata, the most acquisitive mining group in the world pulling its $US11 billion ($A12.6 billion) bid for Lonmin, the big platinum miner based in South Africa, but headquartered in London.
In Australia, BHP Billiton welcomed the decision by the competition regulator not to block its 3.4 share bid for Rio Tinto, and BHP and Rio shares stormed higher.
A case of desperate investors here not understanding the changes happening overseas, or eternal optimists, led by the BHP board?
Xstrata said it does not intend to make a takeover offer for Lonmin because of "extreme volatility and uncertainty in the financial markets".
The "lack of clarity and certainty regarding the future availability of credit introduces significant risks” into financing for any bid, Switzerland-based Xstrata said in a statement.
Xstrata is believed to have lined up a $US15 billion (around $A19 billion) loan from a group of banks to finance its proposed 33 pounds ($A73-a-share) offer and refinance existing debt.
Xstrata had to commit to the bid by tonight, our time, or withdraw. It chose the latter staged a very prudent retreat.
After pulling the bid, it snapped up more than 14% of Lonmin for just over 19 pounds a share and now has an all but controlling 33%.
It’s not the only big international bid to have been killed off by the credit crunch and lending freeze.
Last month a private equity group called off a $A4.2 billion offer for UK events publisher, Informa and HSBC bailed out of a year-long effort to buy 51% of the Korean Exchange Bank for $A8 billion after failing to get the deal finalised and with worries about the global outlook.
Xstrata had built up a 10.7% in Lonmin, but refused to buy any more, even as its target share price sank under the proposed offer price, a good sign of the concern Xstrata was having about the outlook for finance and for commodities.
It snapped up the extra shares after the bid was withdrawn and Lonmin’s price fell.
Despite that Xstrata’s price fell 1.9% in London by the close.
Lonmin replaced its CEO on Monday without warning. Ian Farmer, formerly the chief strategic officer is the new boss and he will drive the company’s review of its existing operations and performance.
Bloomberg estimates that Xstrata has spent about $US28 billion in four years on acquisitions, boosting sales eightfold. It has also ended attempted transactions. The company broke off talks to buy Brazil’s CVRD (Vale), the world’s biggest iron-ore exporter, in April. Xstrata also terminated moves to buy Australia’s WMC Resources in 2005 and Canada’s LionOre Mining International last year after higher bids from rivals.
In Australia, the market was dragged higher by the news that the ACCC would not oppose the proposed BHP Billiton bid for rival Rio Tinto
Rio shares surged, up $A10.50, or 12.43%, at $95.00, after hitting a high of $98.60. BHP Billiton shares were up $A1.75 or 5.6% at $32.75, after hitting a high of $33.40. The 3.4 BHP shares for every 1 Rio share offer was worth $111.35, a still substantial premium to the actual Rio price and a sign of continuing market scepticism.
But BHP shares tumbled 4% in London on the Xstrata news and the worsening outlook for commodities and the global economy.
The ACCC noted that its review of the planned merger had raised "significant concerns".
"While significant concerns were raised by interested parties in Australia and overseas, the ACCC found that the proposed acquisition would not be likely to substantially lessen competition in any relevant market," chairman Graeme Samuel said in a statement.
BHP said in a statement:
"BHP Billiton today welcomed the decision by the Australian Competition and Consumer Commission that it does not object to BHP Billiton’s proposed acquisition of Rio Tinto.
"We are very pleased to have received notice that the ACCC will not object to our proposed acquisition of Rio Tinto.
"We have long believed in the benefits of the combination of BHP Billiton and Rio Tinto. Our strategic rationale has always been based on the combined company having an incentive to produce more products, more quickly, to deliver to customers." BHP Billiton’s Chief Commercial Officer, Alberto Calderon, said.
"Confirmation that the ACCC does not object satisfies the Australian merger control pre-condition of BHP Billiton’s proposed offer for Rio Tinto. In July, the U.S. Department of Justice also announced it would not oppose the transaction. The offer remains subject to the pre-conditions as disclosed in Appendix 1 of the announcement on 6 February 2008."
The ACCC said in August that market inquiries had raised concerns the merged entity might lessen competition for iron ore and drive up prices of the valuable commodity.
Rio Tinto is the world’s second biggest producer of iron ore, while BHP Billiton is the third largest.
"The ACCC’s inquiries indicated that the merged firm would be unlikely to limit its supply of iron ore given the uncertainty it would face in relation to the profitability of this strategy and the risk that limiting supply would encourage expansions by existing and new suppliers as well sponsorship of alternative suppliers by steel makers," Mr Samuel said.
Strong opposition to the merger has emerged from steel makers in Asia and Europe amid concerns a combined entity could have enormous control over global iron ore and other resource commodity prices.
"In relation to the sup
