NRG, Exelon on bridge to nowhere

bridge2‘Tis the season for unbridgeable gaps.

NRG Energy rejected Exelon’s sweetened (and hostile) bid on Wednesday, saying the $6.9 billion offer was still too low.   

Exelon raised its all-stock offer for NRG by more than 12 percent last week, but investors have not been swayed by the increased price. NRG shares have lost more than 15 percent of their value since Exelon bumped up its bid.   

Exelon has said its increased bid of 0.545 of its shares for every NRG share is its best and final offer. 
Still, NRG called the revised Exelon bid a step in the right direction.  “If you would properly recognize the value created by NRG itself, you would be able to increase your current 0.545 offer by a substantial amount,” NRG wrote in its letter.   

Next stop on this long road: NRG’s annual meeting on July 21. Exelon has nominated a slate of directors to stand for election; shareholders will vote.

The two companies are part of a long list of running hostiles, including Broadcom/Emulex, Agirum/CF/Terra, Xstrata/Anglo American, Validus/IPC and EMC/Data Domain. Some of those offers are “unsolicited” and not “hostile” yet. But let’s face it — a bid that is unsolicited and perceived to be undervalued might not be “hostile,” but it isn’t considered particularly friendly.

X-raying Xstrata

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.

Chinalco, Vale hawks circle as Xstrata’s canary swoons

With Anglo having spurned a premium-less bid from Xstrata, the chances of the proposed “mergers of equals” getting done is dimming. The spurned suitor said it was disappointed, but that’s about all it said, so while the possibility of a hostile approach cannot be ruled out, analysts say such a costly alternative is highly unlikely.

Analysts had been reasonably upbeat on Xstrata’s proposal, talking up the merits of a tie-up even as the steel industry shuddered and the government of South Africa, where Anglo has the bulk of its operations, squawked.

But just as investors were dumping their Anglo shares, talk emerged of the possibility of interest from two emerging market heavyweights: China’s Chinalco and Brazil’s Vale. Anglo’s stock quickly steadied.

Xstrata’s clash of Anglo American culture

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”.

Steeling for a fight

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.

Calm waters run deep

Jerry YangYahoo’s Gerry Yang may have thought that giving Carl Icahn a board seat would calm the roiling waters that threatened to pull the chief executive under. But a recount of the vote for its board revealed a strong protest vote against five of nine directors, including Yang. The Internet company said revised vote tallies showed 33.7 percent of votes withheld for Yang, the company’s co-founder. That’s more than twice the opposition to his reappointment to the board as in the disputed first count. Yang has been under pressure for months over failed attempts by Microsoft Corp to buy Yahoo and over questions about his leadership. Analysts were split over whether the recount, while potentially emboldening for critics, was a symbolic embarrassment to the leadership or a new threat to its power. Ahead of the Aug. 1 meeting, Yahoo settled a proxy fight with Icahn, giving the billionaire investor and two members of his proposed slate seats on an expanded board of 11 members instead of the previous nine.

Austrian oil and gas group OMV has called off its unsolicited $23 billion bid offer for Hungarian rival MOL, saying European Union restrictions were too tough to make the deal worthwhile. The move ends an acrimonious year-long standoff between the companies that had begun to irritate some investors and weighed on OMV’s share price. The stock rose nearly 8 percent to a three-week high of 45.60 euros on relief a deal was off. “It was a bad strategic move to make an offer, so this should just narrow the situation,” said Erste Bank analyst Jakub Zidon.

And here’s one from the unwanted advances department: Acquisitive miner XstrataLonmin, unveiled a $10 billion takeover bid for the world’s third-biggest platinum producer, to diversify its business from industrial metals such as copper. South Africa-focused Lonmin swiftly rejected the bid as its shares soared 51 percent to a high of 35 pounds on Wednesday, slightly over Xstrata’s planned offer of 33 pounds a share. Lonmin – and this perhaps is no big surprise — rejected the bid as undervaluing the firm.