Stalemate for mining giants Xstrata and Anglo American

A TIE-UP between Xtrata and Anglo American “remains unattractive for Anglo shareholders,” sources familiar with the talks said yesterday, a day after Xstrata published details of the merger in a bid to convince shareholders of the merits of the deal.

“The Anglo board has firmly rebuffed Xstrata’s proposal,” one industry expert added.

Xstrata upped the pressure on Anglo to merge earlier this week, by publishing the letter it had sent to its rival. It said that around £1bn of cost savings could be made annually.

Analysts now say that Anglo could enhance its current program to cut $2bn (1.3bn) of costs to counter Xstrata’s estimate of merger synergies.

“Perhaps the most likely defense for Anglo, at least initially, is to attempt to prove to the market that it is in the process of unlocking hidden value within the company,” said analyst Christopher LaFemina at Barclays Capital.

But Nomura analyst Paul Cliff said Anglo would need to be bolder in its plan for cost savings.

“If Anglo’s board continues to resist Xstrata’s merger proposal… then we believe Anglo would need to propose a much more aggressive restructuring plan as a stand-alone entity,” Cliff said.