Xstrata officially kills bid for Anglo American, for now

Four months after launching an informal bid for the venerable miner Anglo American (AAL-L, AAUKY-Q), diversified mining giant Xstrata (XTA-L, XSRAF-O) today announced that it has no intention of making an offer for Anglo American.

The bid had its genesis in a June 17 letter that Xstrata sent to Anglo’s board suggesting a merger of the two companiesThe unspoken undertone of the approach was that Anglo’s relatively superior mining assets could be improved upon by Xstrata’s more dynamic management team.

Anglo American’s board promptly turned up its nose at the proposal, but efforts had been ongoing ever since to come to some sort of arrangement.

However, on Oct. 2, the U.K.’s Panel Executive set a deadline for Oct. 20 for Xstrata to either make a firm intention to make an offer for Anglo American under Rule 2.5 of The City Code on Takeovers and Mergers, or announce that it did not intend to make an offer.

“My letter to the board of Anglo American was intended to commence confidential discussions to explore the potential to merge Xstrata and Anglo American, and create a new mining super-major with the scale and diversity to compete in the evolving global mining sector,” said Xstrata chief executive Mick Davis in a statement. “It is regrettable that the board of Anglo American immediately rejected our approach, without engaging with Xstrata to investigate the potential to create more value than either company could alone.”

Davis added that the “compelling strategic rationale for a merger of the two companies remains undiminished” and has been recognised by shareholders of both companies.

Xstrata reckons a merger would deliver over US$1 billion of quantified pre-tax synergies per annum by the third full year following completion, along with superior competitive positioning, scale and diversity. The company believes cost-saving measures by either company alone, while commendable, “simply cannot realise this value, nor deliver the associated strategic benefits.”

But that may not be the end of it: Xstrata is allowed under UK rules to make or participate in an offer for Anglo American within the next six months following today’s announcement, with some restrictions.