Xstrata is different from most other major mining companies. Rather than being a long established group with strong links to a particular country, such as Australia for Rio and BHP, South Africa for Anglo American, or Brazil for Vale, it is a relative upstart with few ties to any particular territory, aside from its tax inspired domicile, Switzerland.

The group’s culture might seem innocuous but it is important, particularly when Xstrata has this week proposed a “merger of equals” with South African stalwart Anglo American. Unlike many of its rivals, Xstrata’s raison d’etre is doing deals, led by raucous chief executive Mick Davis.

The company floated in March 2002 with an initial value of £2 billion. Since then, a number of transformational acquisitions such as the $19 billion purchase of Falconbridge, and the recovery in global commodity prices, has meant the group is now valued at £20 billion. At its record high last year, when it tried to buy platinum producer Lonmin, it was worth £67 billion.

Xstrata’s strength is that it has always been much closer to its customers than other, perhaps more parochial groups keener on looking after their employees. The presence of trading entity Glencore on its shareholder register, with a third of Xstrata’s stock, is testament to this.

Davis’s true loyalty showed earlier this year when he effectively enabled Glencore to retain this stake, by funding its participation in January’s £4.1 billion rights issue, via a side deal selling certain Glencore coal assets in Colombia to the group for $2 billion.

The current tilt at Anglo American, now worth £24 billion, looks a deal too far for Xstrata. For one, Glencore looks likely to be diluted down to a sixth of the combined group, as the proposal currently lies. Secondly, Anglo American will vigorously defend its independence, as it is already showing, helped by implicit South African support.

Glencore must have approved Xstrata’s move but that in effect puts Xstrata in play, if it is indeed willing to effectively relinquish control. That is highly significant. The end result might either see Anglo American making a “pacman” offer for Xstrata to defend itself or else encourage Vale, which has approached Xstrata before, to make a play for it.

Ultimately Xstrata, with few political connections, looks the more vulnerable participant in this process.

Just when you thought M&A was dead, along comes the $68bn “merger of equals” proposal between Anglo-Swiss mining giant Xstrata and rival Anglo American.

Xstrata confirmed over the weekend that its chief executive Mick Davis recently wrote to Anglo American’s outgoing chairman Sir Mark Moody-Stuart about doing a deal. On the back of that, Anglo’s shares surged as much as 12.4 percent before falling back during Monday’s trading.  Spurred on by uncertainty in the global economy, a need for substantial cost-savings, the recent merger of Rio Tinto’s iron ore business with that of BHP Billiton’s – and a belief that Xstrata must double its size to catch its closest competitor, Rio Tinto – and you have the rationale behind Davis’s thinking.

“The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth,” Xstrata said in a statement. According to Citi analysts, the deal “makes financial and strategic sense, and could create synergies of up to $750m.  The combined entity would be a global leader in base metals, platinum, ferrochrome and coal”.

Put another way, the new company would be number one in zinc and platinum production, as well as thermal export coal and ferrochrome.  It would be number two in copper, number four in nickel, and number five in iron ore and coke. Even though metal prices have made major gains for the year to-date, mainly driven by robust Chinese industrial activity and restocking, Chinese imports of those commodities are slowing.  Xstrata sees a tie-up with Anglo American as a defensive move.

While some of Xstrata’s major shareholders – including Glencore, BlackRock and Capital Group – are said to be behind such a merger, Xstrata’s financial advisers, Deutsche Bank and JPMorgan Cazenove, will be facing substantial difficulties to close a deal. Already, Anglo American’s advisers, Goldman Sachs and UBS, are mounting their client’s defence.  Apparently, Anglo’s assets are better quality and have more durability.  “Why would you want to dilute that portfolio with lower value assets?” an informed source told Reuters.

There would also be a clash of cultures between the two mining groups.  Anglo American’s chief executive Cynthia Carroll is understood to have a more command-and-control style, while Davis believes in more self-autonomy of business units.  Indeed, Carroll has so far not been persuaded by Davis’s overtures since Xstrata recapitalised its balance sheet with a $5.9 billion rights issue in March. “Anglo’s reluctance to do a deal and the stark difference in corporate cultures make a tie-up a possibility rather than a probability, in our view,” Citi stated.

It is also unlikely that Xstrata could go hostile since that would rankle the South African government, which has a 5.5 percent stake in Anglo through the Public Investment Corporation.

As for Brazil’s Vale, which has been mooted as an alternative partner for Anglo American or Xstrata, it would be financially stretched.  It has $9bn of net debt: gearing that up further would “seriously risk” its investment grade rating.  Paper financing would be complicated by Vale’s dual structure of ordinary and preferred shares.

If the global recession wasn’t enough, with its idled auto factories and demand dwindling from the construction to the ship-building industries, the world’s steelmakers are facing the kind of consolidation that could well be a transformative event for the business.

Coal giant Xstrata aims to buy Anglo American for $68 billion in a tie-up between two of the biggest iron ore suppliers, creating the second-largest producer of steel-making coals. The move follows joint-venture plans from ore suppliers BHP Billiton and Rio Tinto and is seen as a big threat to steelmakers’ ability to exert any control over falling prices. Expect plenty of opposition from governments about too much pricing power residing in too few hands.

But the deal has other obstacles as well. Xstrata is offering effectively no premium to Anglo shareholders, which is producing loud squawks of outrage from investors. Perhaps by the time this one gets ironed out, the global recovery will be in full swing.

The Xstrata/Anglo deal is probalby going to be all the rage at the annual Steel Survival Strategies conference, which kicks off in New York on Tuesday with executives from U.S. Steel, ArcelorMittal and AK Stee expected to speak.

(From Acquisitions Monthly)

Rio Tinto’s agreement to scrap its refinancing deal with Chinese shareholder Chinalco, join its iron interests in Australia with arch rival BHP Billiton and raise $15 billion from investors is a remarkable coup, solving many of the miner’s problems.

Most importantly it allows the company to halve its $40 billion debts, which doubled to that level when chief executive Tom Albanese bought Canadian aluminum company Alcan for cash at the top of the commodity cycle in mid-2007.

After the cycle turned, and prices fell, exacerbated by the global economic downturn, Rio and Albanese’s position looked vulnerable. BHP had earlier tried to exploit this, proposing a mega 3.4-for-1 all share offer.

BHP said that bid, suggested in early 2008, would only be made if regulatory authorities around the world approved. That was never that likely. However, there should be less resistance to this morning’s proposals by the duo, apart from the usurped Chinese.

In order to combine their iron ore capabilities in Western Australia in a 50:50 joint venture BHP will pay Rio $5.8 billion, from its existing cash resources, to lift its share from 45 percent to 50 percent. That values the venture at $116 billion. Ten billion dollars of synergies are envisaged.

That cash fillip will help Rio in particular. Refinancing its Alcan-related debt was the trigger that pushed Rio into Chinalco’s hands in the first place. The Chinese investor initially took a 12 percent stake in Rio when the latter was first approached by BHP.

Its aim was to try and prevent such a dominant iron ore supplier being created. Ironically, the worst has now come to pass for the Chinese and such a force looks likely to be formed via the BHP Rio joint venture.

For Western democrats, in a week when the world remembers the 20th anniversary of the Tianamen Square protests, that is cheering news. The Chinalco option never looked that attractive once Rio, along with other miners and most equities rallied in March.

Rio’s share price has more than doubled from its low point in January. That made the alternative option, of raising the necessary cash to refinance the debt via a rights issue, a far cheaper and better option.

It is said that all that glitters is not gold. Keep that in mind when considering the bidding war heating up the nuclear power business. France’s EDF has offered $6.5 billion for half of Constellation Energy Group’s nuclear business and some other assets, trumping Warren Buffett’s bid of $4.7 billion for all of Constellation.
 
If plummeting demand for everything from new cars to tin foil could fell BHP’s monster bid for Rio Tinto, why wouldn’t it weigh on demand for energy? While nuclear power has regained some favor as a cheap, relatively clean alternative to nasty fossil fuels, is it really safe to expect consumers to ramp up electric heat this winter, and air conditioning next summer, when they are worried about losing their jobs?
 
And today brings more evidence that the lengthy, torturous bid process BHP endured before walking away from Rio Tinto may have saved it from dealing with a disastrous downturn in demand. Freeport McMoran, which bought Phelps Dodge for $26 billion two years ago, slashed its dividend this morning after raising it only four months ago.  
 
Constellation shares rose nearly 20 percent to over $30 this morning, but that is still well below the value of the EDF bid — $52 a share. Perhaps investors aren’t quite so warm and fuzzy toward nukes after all.

* Australia said it is open to a $5.9 billion merger between Qantas Airways and British Airways as long as it’s not a takeover, sending the Australian carrier’s shares up nearly 10 percent.

* A Japanese unit of Prudential Financial plans to bid for two Japanese life insurers put up for sale by American International Group, people familiar with the matter said.

* Investment funds of Wall Street banks Goldman Sachs and Morgan Stanley and private equity giant Bain Capital plan to invest a combined at least $30 million into a Chinese movie distributor soon, top boss of the distributor Poly Bona told Reuters.

* The Irish government said it would consider Ryanair’s new offer to buy rival airline Aer Lingus, in which the state holds a 25 percent stake, but it will be careful to preserve competition.

* Debt-laden Telecom Italia, Europe’s fifth-biggest telecoms provider, will shed assets worth up to $3.82 billion and cut another 5 percent of its workforce in a bid to slash borrowings and trim costs amid a weak economy.

* Two investors in Irish Continental Group said they were in talks about a possible offer for the company, owner of Irish Ferries, reopening a bidding war between competing shareholders with blocking stakes.

* Georgia has sold the remaining 49 percent of its Black Sea port of Poti to RAK Investment Authority of the United Arab Emirates for $65 million, its deputy minister Vakhtang Lezhava told Reuters.

* Government-owned Nakheel Properties, developer of Dubai’s palm-shaped islands, is not in discussions over the sale of company and has no immediate plans to cut more jobs, the chief executive told Reuters.

* Swedish oil and gas group Lundin Petroleum has agreed to sell its 9.2 percent stake in Revus Energy to Germany’s Wintershall, helping to clear the way for Wintershall’s takeover of Revus.

(Reuters photo: Vincent Kessler)

A day after mining giant BHP Billiton dropped its bid for rival Rio Tinto, Rio said it was confident it could sell assets worth billions of dollars. Analysts aren’t convinced.

As the credit crisis dries up available funds, some companies are backing away from buying anything.

“The environment over the next six to 12 months is not going to be a good environment for selling assets,” said FW Holst analyst Rob Craigie.

Despite the skeptics, Rio Chairman Paul Skinner, speaking at a scheduled business breakfast, said it would make asset sales in the next few months.

“We now move on. We have a very strong company,” Skinner told reporters. “We are confident with our financial position. We have other ways of managing our debt.”

Assets on the block include a major packaging business, aluminum products, its U.S. coal business, an Australian copper mine and its U.S. Sweetwater uranium mine.

(Note from Editor: Given the Thanksgiving Day holiday this week, today’s posting will be the last for this week. Expect us back as usual on Monday.)

More Deals of the Day:

** Goldman Sachs has broken off talks with Panasonic Corp for now on selling its stake in Sanyo Electric after the electronics maker made an offer below Sanyo’s current stock price.

** India’s Sun Pharmaceutical Industries Ltd said its unit had acquired 100 percent of U.S.-based narcotic producer and importer Chattem Chemicals Inc for an undisclosed sum.

** QBE Insurance Group Ltd, Australia’s top insurer by premium income, will buy U.S.-based underwriting agency ZC Sterling Corp for $575 million, part funded by a $1.3 billion equity raising, and has upped its 2008 revenue growth target.

** Bahrain-based retail lender Bank of Bahrain and Kuwait is considering merging its newly-launched Islamic bank with peer Shamil Bank or another bank, its chief executive said in remarks published in Al Watan newspaper.

** U.S. private equity group KKR is planning a bid for Abengoa’s Nasdaq-listed technology unit Telvent GIT, Expansion reported citing sources familiar with the deal.

** Trading in shares of Woolworths Group Plc, the struggling sweets-to-DVDs retailer, were suspended, while talks continued to save the business from collapse. The 99-year-old group confirmed it remains in talks regarding the potential sale of its 800-store retail business to restructuring specialist Hilco UK for a nominal sum.

** Mobile telecoms equipment provider Ericsson and chipmaker STMicroelectronics won permission from EU competition authorities to combine their wireless chip and software businesses.

** Hungary’s OTP has been looking at possible foreign acquisitions in recent months but is not likely to make any purchases until the global financial crisis is over, Chief Financial Officer Laszlo Urban said.

** Spain will fight to keep oil major Repsol YPF Spanish and independent in the face of possible stakebuilding from Russia’s LUKOIL, Prime Minister Jose Luis Rodriguez Zapatero said.

** Colonial has granted buy options on its 15.45 percent stake in Spanish builder FCC and its 33 percent of French unit SFL to its creditor banks, the property developer said.

** Porsche SE will not pay “ridiculous” prices for VW shares amid recessionary conditions, it said, backing away from its previous target to take majority control of Europe’s biggest carmaker by the end of the year.

BHP announced an all-share offer valuing Rio at about $193 billion last November, as mining boomed worldwide. BHP said the risk of taking on Rio’s much heavier debts, and the low prices it could expect from asset sales forced on it by regulators, were among the factors behind the decision to abandon the bid.

The decision could have far-reaching consequences for consolidation in the industry, writes Reuters’ John Kemp.

“For more than two decades, merger policy in the EU and around the world has become progressively more permissive, as regulators cited new theories of market “contestability” to permit accumulation of market shares that would have been blocked had they been proposed in the 1960s and 1970s.

But the BHP-Rio deal proved a step too far. The EU’s decision to insist on significant asset disposals is consistent with other signs that competition policy is toughening in the EU and around the globe,” Kemp says.

BHP’s backtracking also clearly illustrates how times have changed in a very short span as the credit crisis took hold and crippled global financial markets.

“The market has changed dramatically in the last six months. What made sense six months ago doesn’t make sense now. People talked about synergies in iron ore. Those synergies are still there, but nobody is prepared to pay for them,” said Michael Komesaroff, manageing director at Urandaline Investments.

But one company’s pain is another’s gain, as the old saying kinda goes. And the winner here may be the world’s steelmakers, said Kim Gyun-Jung, analyst at Samsung Securities in Seoul.

“This means the end of a long rally in iron ore prices and steelmakers will now have more bargaining power in annual term negotiations, because they are reducing iron ore purchases as well as steel production in the face of sharply falling demand,” Kim said.

Other Deals of the Day:

** Malaysia’s MISC Bhd, the world’s largest carrier of liquefied natural gas, scrapped a $882 million takeover bid for oil services firm Ramunia Holdings Bhd, saying its due diligence findings were unsatisfactory.

** Chinese state-owned Citic Group and its subsidiary paid 3.26 billion yuan ($477.3 million) to buy a 49 percent stake in metals smelter Baiyin Nonferrous Metals from the provincial government of Gansu, a senior executive at Baiyin said.

** Spain’s state credit institute gave 350 million euros ($440.8 million) to builder Sacyr in 2006 to help fund its purchase of a stake in Repsol, El Mundo reported, without citing its sources.

** Roche Holding AG has agreed to buy biotech company Memory Pharmaceuticals Corp for about $50 million in cash, the Swiss drugmaker said.

** Munich Re, the world’s biggest reinsurer, said its direct insurance arm is looking to enter new markets in Asia and that it is interested in parts of American International Group’s Asian life insurance business.

** Chinese heavy machinery maker Changsha Zoomlion Industry Science and Technology Development had talks on possible asset purchases in the United States, Jianguo Zhang, senior president, told Reuters on the sidelines of an industry event.

** Randstad, the world’s second-largest employment agency, is paying 12.3 million euros ($15.8 million) for a 10 percent stake in FujiStaff Holdings Inc to give it a foothold in Japan.

** Russian billionaire Oleg Deripaska is in talks to sell control of Bank Soyuz to a lender founded by gas giant Gazprom, Russian newspapers reported, citing unnamed sources.

** A joint venture of five Indian state-run firms is looking to take stakes in coal mines in Australia, the chief of one of the firms said.

Uncovering another dire quarter, with $5.6 billion in net writedowns and a worse-than-expected $3.93 billion loss, Lehman Brothers said it plans to sell a majority stake in its investment management division and spin off commercial real estate assets. The Koreans aren’t buying — they officially ran for the hills overnight — and Lehman also moved to dump other assets before announcing its results. It said in a filing it was chopping its stake in BHP Billiton almost in half, to below 3 percent. Back when Korea Development Bank was still interested in a Lehman stake, the word was that the two sides were having trouble agreeing on a price. Analyst Dick Bove said the bank was refusing to take what it believed were fire sale prices for its key assets. The question now is whether the offer of a majority stake in its investment division represents a change of heart — one that could smack of desperation for a market all too ready to believe the worst.

Other deals of the day:

* Coca-Cola plans to seek approval under China’s antitrust law for its $2.5 billion bid for top domestic juice-maker China Huiyuan Juice Group, the final obstacle to what would be the largest foreign takeover of a local firm, Huiyuan said.

* Infosys Technologies , India’s second-largest software services exporter, said it was confident its bid for Britain’s Axon Group would succeed and there was no rival bid on the table at the moment.

Just yesterday, the sound of doors closing could almost be heard echoing across the pacific as Lehman Brothers reportedly hit the Asian wealth circuit looking for help filling its expected $4 billion in third-quarter writedowns. Now state-run Korea Development Bank says it might be interested in buying the bank, lighting an 8 percent fire cracker under Lehman’s stock in premarket trade. “We are studying a number of options and are open to all possibilities, which could include (buying) Lehman,” a KDB spokesman said. KDB said it was open to mergers or acquisitions of both domestic and foreign companies to beef up its weak areas as the government was aiming to privatize it by 2012. Previous reports said KDB and CITIC Securities, China’s biggest brokerage, balked at the high price Lehman was asking.

Since its long-standing dispute with CME Group’s Chicago Board of Trade over trading rights is just about settled, the Chicago Board Options Exchange may soon become a takeover target. While the CBOE is expected to pursue an initial public offering, with a filing possible as soon as next month, many exchange industry experts see that as only an interim step. It will be like sticking a “for sale” sign up, they argue. Despite being the top U.S. equities options market, with a stranglehold on index options, the CBOE may have to consider a bigger partner. It is one of the few remaining stand-alone exchanges, which leaves it vulnerable to a squeezing of its margins by growing competition, particularly exchanges that can offer investors stocks and options under the same roof.

Mining giant BHP Billiton’s $128 billion bid for rival Rio Tinto could raise competition issues in iron ore. With mines across Australia’s ore-rich Pilbara region, Rio Tinto and BHP are the world’s second- and third-largest iron ore producers, respectively, behind Brazil’s Vale, and analysts reckon a combined group would control about 35 percent of the world’s seaborne traded iron ore. In a nine-page “statement of issues” ahead of its Oct.1 ruling, the Australian Competition and Consumer Commission (ACCC), which can order companies to sell assets if it thinks they have too big a hold in one sector, highlighted the likely impact of a deal on the iron ore trade and, in particular, on Australian steelmakers, but saw no major competition issues in copper, gold, uranium, bauxite or alumina. “I don’t think that’s a surprise to the two companies, particularly BHP … that iron ore would be the one area the regulators would be looking at very closely,” said Ken West, a partner at Perennial Growth Management. “But the Pilbara is the one they don’t want to be tampered with. If the regulators don’t show flexibility, then the Pilbara could become a deal breaker,” West said.

Other deals of the day

* Aon Corp, the world’s largest insurance broker, has made a recommended cash offer for Benfield valuing the UK-listed broker at 844 million pounds ($1.6 billion).

* New Zealand jeweller Michael Hill International said it had agreed to acquire 17 stores from the chapter 11 bankruptcy of Whitehall Jewelers Holdings Inc. The company said it would pay $5 million for the stores in Illinois and Missouri, its first foray into the U.S. market.

* Providence Equity Partners and MBK Partners are among the private equity firms on the shortlist for a 45 percent stake in the new telecom unit of Hong Kong’s PCCW, in a deal that could fetch more than $2.5 billion.

* Mining giant BHP Billiton’s $128 billion bid for rival Rio Tinto could raise competition issues in iron ore, Australia’s antitrust regulator said.

* Vitec Group said it will buy California-based LED lighting business Litepanels for up to $64.5 million to expand its Broadcast Systems division.

* British alternative software vendor Formjet said it has decided not to go ahead with a planned 1.2 million pound acquisition of a specialist distribution company.

* Sale of Russia-focused Imperial Energy is likely to be announced next week, an Indian government source said, confirming that Oil and Natural Gas Corp is in the race to buy the firm.

* South Korea’s POSCO, the world’s No.4 steelmaker, may buy iron ore, steel mill and shipyard assets in Ukraine, as it looks to reassure investors who have questioned its potential acquisition of Daewoo Shipbuilding.

Barnes & Noble Inc reportedly has read the market and decided to turn the page on an acquisition of rival Borders Group Inc. The largest U.S. specialty bookseller, which had been looking into a bid for Borders, is likely to take a pass because of tight lending markets that would make it difficult to arrange bank financing, the Wall Street Journal said, citing people familiar with the situation. Borders, which put itself up for sale in March, has struggled with liquidity issues and has been closing underperforming stores and taking other steps to turn around its business.

Reuters’ DealTalk columnists report that overseas metal and mining companies may have U.S. coal assets in their sights. Indian and Russian firms in particular are looking to snap up assets in order to gain a foothold in the U.S. metallurgical coal market, DealTalk says. Metallurgical coal, also called met or coking coal, is used to make coke, the material used to fuel blast furnaces at steel mills. Two assets that could be on the market are privately owned U.S. coal producers United Coal and Bluestone, one source familiar with the matter said.

Shares in Impala Platinum (Implats), the world’s No. 2 producer of the precious metal, raced 9 percent higher on Thursday partly boosted by market talk that BHP Billiton could make a $26 billion bid for the South African company. South African website www.Miningmx.com said BHP may soon have no choice but to make an offer of at least 200 billion rand ($25.65 billion) for Implats. The article said BHP, the world’s largest producer of metals and minerals, had the world’s best and most diversified portfolio of assets in the resources sector — with the exception of platinum, to which it has no exposure. “At the moment it is pure speculation, but yes, for sure the speculation is affecting the (share) price,” Roy Lamb, a trader at Investec Securities in Johannesburg said. BHP declined to comment.

Other deals of the day:

* QBE Insurance Ltd, Australia’s top insurer by premium income, said it had agreed to acquire U.S. mortgage insurance group PMI’s businesses in Australia and New Zealand and in Asia for a total of A$1.027 billion ($901 million).

* Swiss insurer Swiss Life has taken a stake in German pension sales specialist MLP, upped its holding in rival AWD for 427 million euros ($639.5 million), and will cap share buybacks.

* Dutch Philips Electronics said it has sold its remaining stake in Taiwan Semiconductor Manufacturing Company (TSMC), which will result in a book gain of 260 million euros ($390 million).

* Thailand’s largest music and entertainment group, GMM Grammy, said it would merge with its 79.75 percent owned subsidiary, GMM Media, as part of a business restructuring.

* Gas Natural raised its potential stake in power generator Union Fenosa to over 50 percent after agreeing to buy a 5.15 percent stake from savings bank Caja de Ahorros Del Mediterraneo (CAM).