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UPDATE 3-Xstrata resumes wooing Anglo with $1 bln synergies

Published 06/24/2009, 02:09 PM
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* Xstrata releases details of merger proposal

* Sticks with nil-premium, "merger of equals"

* Pledges no job cuts in South Africa

* Anglo expected to stand firm in rejection

(Adds Aviva Investors statement)

By Eric Onstad

LONDON, June 24 (Reuters) - Mining group Xstrata put more pressure on takeover target Anglo American Plc to come to the negotiating table on Wednesday, releasing details of its proposal which includes cost savings of $1 billion.

The Anglo-Swiss firm also attempted to reassure South Africa, whose mining minister has strongly criticised the plan, by pledging a merger would not add to the country's high unemployment.

Anglo on Monday rejected a proposed "merger of equals" floated by Xstrata one day earlier, saying the idea lacked strategic rationale and that the terms were "totally unacceptable".

Anglo was not immediately available to comment on the letter it received dated June 17, but analysts said it was unlikely to change its stance.

"I think the Anglo American board has made its position perfectly clear that really there is no reason for them to entertain any discussions with Xstrata," said analyst Charles Kernot at Evolution Securities.

"BMO Research expects that Anglo American would continue to reject the overture and that Xstrata may respond with a hostile bid," analyst Tony Robson of BMO Capital Markets said in a note.

Anglo's shares extended gains, jumping 10.1 percent to 1,819 pence by 1456 GMT, outpacing a 5.8 percent increase in the UK mining index. Xstrata shares added 5.9 percent.

STICKS TO NIL-PREMIUM PLAN

"We remain convinced of the undeniable logic for a merger of equals between Anglo American and Xstrata," Xstrata's chief executive, Mick Davis, said in a statement.

"I feel sure that, in time, Anglo American's board will want to examine comprehensively the merits of this transaction for its shareholders."

Xstrata, the world's biggest exporter of coal for power plants, did nothing to appease Anglo investors who have demanded a premium to agree to a marriage.

"The proposal bears none of the characteristics of a takeover, in which a premium would typically be payable," Xstrata said, adding that both firms would contribute to the board and management of a new merged company and that its management had a strong track record for cost performance against the sector.

Some analysts and shareholders have expressed disappointment at the performance of Anglo's chief executive, Cynthia Carroll, and see a strong selling point in Davis taking over management of a merged group.

But shareholder Aviva Investors, which said it held 1.15 percent of the stock, released a statement saying it saw little financial or strategic merit for a deal and supported the Anglo rejection.

"We remain supportive of the current management team, believing that the market is being too short term in judging the success or otherwise of the ongoing restructuring of a complex business," said Niall Paul, chief investment officer, equities, for Aviva Investors London.

Combining the two firms could result in over $1 billion of annual pre-tax synergies by the third full year after completion, Xstrata said. Gross one-off realisation costs in the first two years were forecast at $500 million.

Those savings, however, would not be at the expense of workers in South Africa, addressing concerns by South Africa's mining minister who has labelled a merger as "unacceptable".

"Xstrata's synergy estimate does not assume nor envisage any workforce retrenchments at the combined group's South African operations and Xstrata believes that South Africa would be a net beneficiary of the transaction," Xstrata said.

A merger would create a group worth $67 billion based on Tuesday's closing share prices.

The group would have added bulk to compete against sector No. 1 BHP Billiton which is valued at $138 billion and Rio Tinto at $68 billion.

A combination of the two firms would create the world's biggest producer of zinc, platinum, coal for power stations and ferrochrome and second biggest in coal for steelmaking and copper. (Editing by Jon Loades-Carter, Greg Mahlich)

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