Investors anticipate Xstrata to make another run at Lonmin

Xstrata (XSRAF-O, XTA-L) could be gearing up for another run at the world’s third largest platinum producer Lonmin (LMI-L).

But investors will have to weigh whether Xstrata, with its insatiable appetite for acquisition, will be more likely to zero in on a relatively smaller fish like Lonmin at the expense of going after the bigger fish, Anglo American (AAL-L, AAUK-Q).

The consensus on the Street is that Xstrata can only make a move for one of the companies.

Besides the small obstacle of funding two such acquisitions, a combination of Xstrata with Lonmin and Anglo American would violate anti trust law as the new entity would control over half of the worlds platinum supply.

Belief that Lonmin will be the target after Anglo American has continually stressed its distaste for Xstrata’s overtures, have been behind Lonmin’s recent market run. The company’s shares began the month trading for just £13.89, but rumours of a takeover bid drove them up to a close of £17.12 in London on Sept. 8.

Despite the recent lift, the London-based company still finds its share price a ways off from the £22 range it was trading in at the time of Xstrata’s original offer for the company back in August of last year.

Despite that offer being for £33 per share – a 42% premium – Lonmin called the offer opportunistic, although it might have regretted its stance shortly thereafter.

While the logic behind Lonmin’s argument at the time was that its shares had been trading in the £34 range just a few months prior to Xstrata’s initial offer, its shares took a serious fall after Xstrata withdrew the bid a month later, and have stayed at a depressed level ever since.

While the financial meltdown of last fall and the corresponding drop in equity and platinum prices were seen as the reason for Xstrata bailing on its offer, U.K. law prevented the company from making an offer at a lower price until 12 months from the expiration of the initial offer.

That means that the company is free to make another bid in October.
Xstrata currently has a 25% stake in of Lonmin.

Anglo rejected Xstrata’s £42-billion “merger of equals” idea two months ago for several reasons, not least of which being that the offer came without a premium.