Xstrata approaches Anglo American

Swiss-based international mining giant Xstrata has approached rival Anglo-American about the possibility of what it calls a ÔÇ£merger of equals.ÔÇØ  XstrataÔÇÖs chief executive recently sent a written proposal to the board of Anglo American proposing a merger, saying that a union of "these two world-class companies" was "highly compelling."  A merger between the two would make a great deal of sense, according to industry observers, because of the vast cost savings that could be made.  A tie-up between Xstrata and Anglo American would create a company worth more than Rio Tinto, which earlier this month cancelled a deal with Chinese resources conglomerate Aluminum Corporation of China (known as Chinalco) in favour of a joint venture with the world's biggest mining group BHP Billiton.  In a very brief statement today, the board of Anglo American confirmed that it had received a preliminary proposal from Xstrata, but that it ÔÇ£may or may not lead to a transaction involving the Group.ÔÇØ  The statement continued: ÔÇ£It should be noted that this situation is at a very preliminary stage and that there is no certainty that any transaction will be forthcoming. A further announcement will be made if and when appropriate.ÔÇØ From XstrataÔÇÖs point of view, the combination would create ÔÇ£a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth.ÔÇØAnglo and Xstrata both have coal mines and infrastructure in Australia and South Africa.  The combined firm would be worth about ┬ú41 billion based on their stock market value on Friday.  The Sunday Times reports that Anglo is believed to be against the deal, saying its chief executive Cynthia Carroll believed the firm was better financed than Xstrata and could generate a better return for its investors as a separate entity.  Analysts said that they expected the Anglo American board to attempt to convince its investors that remaining independent would be better for shareholder value. There are synergy opportunities, however, to reduce costs through merging the companiesÔÇÖ coal assets in Australia and South Africa as well as their copper mining and head-office operations.  *┬á┬á┬á┬á┬á┬á *┬á┬á┬á┬á┬á┬á *