Bearly compelling

24 June 2009 By Una Galani Follow @ugalani

The miner has published its merger of equals approach to Anglo, detailing annual synergies of at least $1bn. The industrial case is reasonably attractive. But unless Xstrata dangles some sort of premium, it s hard to see how it can entice Anglo into talks.

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Xstrata published on June 24 the letter it sent the previous week to the board of Anglo American proposing a merger of equals. Anglo rejected the proposal as completely unacceptable on June 22.

The letter proposed a combination of the two miners in which each set of shareholders would benefit equally [from] at least $1bn per annum of synergies, including:

Over $458m per annum of operational, logistical and procurement synergies. These would be derived in part from optimising neighbouring operations, in particular coal assets in Australia and South Africa, and copper interests in Chile. There would be rationalisation of overlapping activities in coal, copper, zinc and platinum. The estimate excludes a number of potential longerterm project synergies.

$237m per annum in savings from streamlining divisional functions and offices in the coal, copper and platinum businesses.

$309m per annum through the creation of streamlined central functions, such as insurance, exploration and technology.

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