Xstrata Seeks Merger with Anglo American

[Joanne98]

LONDON -- Anglo-Swiss miner Xstrata PLC has made a bold merger approach to rival Anglo American PLC, an effort that underscores the competitive pressure facing miners but also faces steep odds of success.

Xstrata said in a statement Sunday that it had sent a proposal to Anglo's board seeking consideration of a merger of equals – a combination that would have a market value of more than $68 billion, displacing Rio Tinto as the world's third-largest miner after BHP Billiton and Brazil's Companhia Vale do Rio Doce.

U.K.-based Anglo, in a separate statement, said "this situation is at a very preliminary stage" and didn't provide other details.

Xstrata is expected to propose a deal that would put its management, led by Chief Executive Mick Davis, more in control of the combined company, which would be equally owned by both companies' shareholders, people familiar with the matter said.

Any deal, though, faces high hurdles. For one, Xstrata is not offering a premium for Anglo shares, and would be hard pressed to raise the money to do so. Also, any desire on Xstrata's part to take the lead in managing the new company will likely reduce Anglo's enthusiasm. Beyond that, a deal could face political headwinds in South Africa, where Anglo has significant operations.

Regardless of the outcome, Xstrata's move highlights the pressures facing miners, which are seeking to cut costs to keep pace with the dramatic downdraft in prices as a result of the economic downturn. Prices for many metals and minerals are 30% to 50% lower now than they were 12-18 months ago.

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