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." ┬áA 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 favor of a joint venture with the world's biggest mining group BHP Billiton.┬á 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.ÔÇØ┬áAnglo 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. ┬áThe 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. ┬áAnalysts said that they expected the Anglo American board to attempt to convince its investors that remaining independent would be better for shareholder value.┬áThere 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.