Vale and Xstrata Merger Talks

123jump.com Staff
21 Jan, 2008
New York City

Brazil based iron ore mining company CVRD, known as Vale confirmed that it is in talks to acquire Swiss controlld Xstrata. The deal was valued in the local press in Brazil at anywhere between $60 billion and $90 billion. Vale in the last five years have acquired companies in Canada, Africa, and China. Xstrata, even though it acquired Canda based Falconbridge for $24 billion has been viewed as a target by large mining companies.

[R]1:00PM New York and 3:00PM Sao Paolo – Vale of Brazil and Xstrata of Switzerland are exploring merger between two companies.[/R]

Brazil based iron ore mining company CVRD is in talks to with Anglo-Swiss mining company Xstrata Plc.

Vale, as it is popularly known said, “In an environment of a global consolidation of the mining industry, VALE has been maintaining a dialogue with Xstrata Plc management. At the moment, these discussions have not produced any material result yet.”

The news first reported in Valor Economico said that the purchase of Xstrata may be between $60 billion and $90 billion.

Iron ore prices have jumped sharply in the last three years as China builds its infrastructure and manufacturing capacity. However, Vale remains dependent on the iro ore demands and price cycle.

Xstrata, built on the acquisition of small mining companies using the revenue from the sale of nickel to steel companies, has broadened its portfolio to copper, coal, and other commodities.

While Vale acquired Canada based Inco for nearly $18 billion in 2006, Xstrata bough Falconbridge Ltd for $23.8 billion and completed the acquisition in August 2006.

The deal between the Vale and Xstrata will catapult company near the top of mining companies list with operations in Brazil, Canada, China, Africa, and Caribbean. The combined companies are expected to have a market capitalization of $150 billion and will have one of the world’s largest reserves of iron ore, copper, zinc, nickel, metallurgical coal, and precious and rare earth metals including gold, silver, and vanadium.

Investors in Brazil and New York feared that in a current market environment where metal and commodities prices are falling on expected global economic slowdown, Vale may overpay for Xstrata.

Main in Sao Paolo fell 6.5% as global markets sold-off and Vale fell 9.54% or 4.50 reais to 42.65 reais.

Xstrata in London trading fell 184 pence r 5.5% to 3,179 pence as FTSE 100 index fell 5.5%.

[R]6:00AM New York, 6:00PM Hong Kong - Cyclical variations in China economy to trim close to 6% off 2007 GDP growth.[/R]

Hong Kong stocks declined sharply reflecting worries across Asia on the ongoing losses in the U.S. financial companies, lack of clear direction from the U.S. government, and complacency related to the U.S. housing market turmoil.

Financial stocks fell after a broker said that the Bank of China will write-down overseas securities by Rmb35 billion or $4.8 billion.

In Hong Kong trading Hang Seng Index dropped 5.5% or 1,383.01 to 23,818.86, a 25% drop since the high reached in October 2007.

The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, declined 7.1% or 1,029.87 to 13,531.45.

Daily turnover on main-board was HK$117.5 billion compared to HK$127.4 billion last week.

BNP Paribas downgraded Bank of China saying that the Bank of China may write down Rmb 17.5 billion for the fourth quarter of 2007 and same amount for the year. BOC had only provisioned $473 million for $7.95 billion subprime exposure according to the analyst reported on Bloomberg news website.

The BOC has relatively small exposure to sub-prime and other riskier loans in the U.S. with exposure of only 3% of its portfolio limited to these loans.

The South China Morning Post published today that Bank of China might post loss in 2007 because of write-down on billions of dollars of U.S. subprime-related investments. Bank of China declined 6.4 % to HK$3.36, near its low since it was listed in June 2006.

HSBC Holdings slumped 4.1% to HK$113.6, the Bank of Communication, China Construction Bank, and Hang Seng Bank Ltd fell in sympathy.

The largest lender Industrial & Commercial Bank of China fell 7.8% to HK$4.86. China Life also plummeted 9.5 % to HK$32.85.

China Eastern Airlines snubbed a bid to buy a 30% stake in the firm for as much as HK$14.9 billion after saying it “doubted the sincerity” of the offer. Air China unit China National Aviation Corporation said it will offer HK$5 a share.

China Eastern halted trading in its shares in Hong Kong today pending a statement on developments about strategic investments. The airline is seeking an alliance with Singapore Airlines but minority stakeholders last week vetoed the deal.

Air China fell 15.2% to HK$8.38.

Oil companies also declined. PetroChina Co Limited fell 8.4% to HK$11.30, while oil refiner Sinopec Corp slipped 9.1% to HK$8.39.

China Telecom Corporation announced today that the fixed line operator had lost 1.48 million phone customers last month and subscribers fell for a fifth month in December to 220.3 million. China Telecom fell 7.8% to HK$6.04.

Nine Dragons Paper Holdings Limited Chief Executive Liu Ming Chung said today that it plans to invest $1 billion over the next two years to increase capacity and meet demand. The company plunged 8.4% to HK$12.82 as a result.


[R]5:00AM New York, 7:00PM Tokyo - Asian markets close sharply lower as fears of the U.S. led global slowdown made rounds.[/R]

Stocks fell in Japan weighed down by weak domestic data and lingering concerns of the sub-prime mortgage crisis. Asian markets in the region fell sharply after investors shrugged off President Bush economic stimulus package as too little and too late.

Australian market fell for the eleventh trading session in a row, Hong Kong closed down 5.5%, and India recovered from a plunge of 11% before closing down 7.4%. Fear of global economic slowdown and lack of clear direction on trading desks around the region was visible.

In Tokyo Nikkei 225 Index closed lower 535.35 or 3.86% to 13,325.94, in Hong Kong Hang Seng index decreased 1383.01 or 5.49% closed to 23,818.86, in Australia ASX 200 index declined 166.90 or 2.90% to close 5,580.40.

In South Korea Kospi Index decreased 51.16 or 2.95% to close at 1,683.56, in Thailand SET index closed lower 23.14 or 2.93% to 766.53, and Indonesia JSE Index edged decreased 125.25 or 4.80% to 2,485.88. Sensex index in India decreased 1408.40 or 7.41% to 17,605.35.

In Tokyo trading Nikkei 225 fell 3.86% or 535.35 to 13,325.94, while the broader Topix Index slumped 3.6% or 47.76 to 1,293.74, below 1,300 for the first time since September 2005.

In the first section of the Tokyo Stock Exchange 21 billion shares worth 2.5 trillion yen were traded and in the second section 762 million shares worth 10.1 billion yen changed hands.

Of the Nikkei 225 stocks 5 gained, 219 declined, and one was unchanged. Shinsei Bank Limited led advancers with a rise of 2.27% on reports a U.S. buyout firm will acquire 23% of the company for 220 billion yen.

The Ministry of Finance’s regional economic chiefs today cut the evaluation of five of the eleven regional economies in the quarterly economic report. However, the finance ministry said Japan’s economy is on the whole expanding at a moderate pace, and left its overall economic assessment unchanged for the 16th quarter.

The Real Estate Economic Research Institute said in a report published today that the supply of condominiums in Tokyo and the surrounding areas plunged 18% from a year ago, the most since 1991 as demand fell on rising sales prices on higher materials costs and land costs.

Furthermore condominium supply in Tokyo fell for the second consecutive year by 18.1% to 61,021.

The Australian news online reported today that Citigroup will proceed with a 32% stock offer for a 32% stake in Nikko Citigroup at a ratio of 0.6 to 1 on a 1,700 yen share valuation of the brokerage. The revised offer values Nikko acquisition at 1.58 trillion yen.


U.S. President Bush’s plan of a stimulus package to provide and much as $150 billion failed to excite the markets on January 18. The U.S. Administration is considering offering $800 tax rebate for individuals and $1,600 for households. However the tax rebates in the past have not been effective in lifting economic growth. Most of the payment ends up in paying the credit debt and not on spending for new goods and services.

Of the Nikkei 225 index shares Shinsei Bank Limited led advancing stocks with a rise of 2.27% followed by rises of 1.20% in Chugai Pharmaceutical Company, of 0.62% in Kao Corp, of 0.43% in Tokyu Corp, and of 0.32% in Japan Tobacco.

Mitsui Engineering & Shipbuilding led decliners in the Nikkei 225 stocks with a fall of 8.99% followed by losses of 8.85% in Toho Zinc Company Limited, of 8.61% in Dentsu Incorporated, of 8.02% in Pioneer Corp, and of 7.89% in Hitachi Zosen.

Shipbuilders fell on concern the U.S. and Japan will enter into a recession, leading to a decline in demand for raw materials.

Other shipbuilders fell as well. Mitsui OSK Lines plummeted 5.67%, Kawasaki Heavy Industries shed 5.17% and Kawasaki Kisen fell 5.69%.

Dentsu plunged after Merril Lynch & Company cut its rating of the stock from “buy” to “neutral” saying the advertising market will be week between April and June.

Merrill also cut its 12-month price estimate on the stock from 267,000 yen to 370,000 yen.

Financial stocks slipped after Bank of America downgraded MBIA Incorporated and Ambac Financial Group from “overweight” to “neutral” on concern of rising potential losses. Mitsubishi UFJ Financial Group shed 6.15%, Mizuho Financial Group dropped 4.92% and Resona Holdings lost 6.82%.

Fujitsu said in a statement today it will spin off its semiconductor business by the end of March 2008 and spend 10 billion yen to relocate its production facility. The company’s semiconductor business is forecasted to generate less than 5 billion yen in profit this fiscal year.


[R]3:00AM New York, 7:00PM Sydney - ASX 200 index declined 2.9% on a weakness in financial and mining stocks.[/R]

ASX 200 index lost 2.9% or 166.9 to close at 5,580.40.

At close, the preliminary market turnover statistics suggested that 1.118 billion shares worth $1.69 billion shares changed hands. Of the stocks trading on the ASE, 326 shares moved up, 1,018 stocks traded down, and 296 closed unchanged.

Gondwana Resources led the most active stocks list with 129.24 million shares worth $5.6 million changing hands.

Australia''s two biggest media families are in a partnership to form multibillion-dollar deal as Lachlan Murdoch seeks to join forces with James Packer.

Murdoch proposed to acquire 100% of the Consolidated Media through private vehicle Illyria Pty Ltd. The indicative and conditional proposal implies consideration of $4.80 for each Cons Media share, valuing the target at $3.31 billion.

Under the deal, Illyria and its equity partners would create a 50/50 joint venture with Cons Media''s major shareholder Consolidated Press Holdings Ltd as part of a consortium. Cons Media said Conspress has given its support to the proposal.

Final terms between Illyria and Conpress are not agreed. Cons Media said the offer comprises of fixed cash amount of $4.06 per share plus a variable cash amount to be determined.

Consolidated''s assets include the remaining 25% of PBL Media and 27% of Internet jobs portal Seek. It also owns 25% of Foxtel, giving it the same size stake in the country''s biggest pay television operator as News Corp. Telstra Corp. controls the remainder.

Property funds manager MFS today requested for trading to be halted in its shares after it appointed a new chief executive. MFS appointed Craig White as its new chief executive and the resignation of Michael King.

The MFS stock plunged 70% on Friday amid concerns over $550 million fund raising. The trading halt remains in place until MFS makes an announcement or the share market opens on Wednesday. MFS shares closed 68.87% per cent, lower at 99 cents on Friday, after falling as low as 71 cents.

After coming under pressure on Friday from investors, Mr King said that the proposed $550 million capital raising was the upper limit and acknowledged that the proposal was not well received. King also said MFS planned to repay $150 million in short-term debt, which is due in March 2008.

Property investor City Pacific had made an offer for the company''s financial services business, valued at about $1.3 billion, but withdrew it today after reviewing a demerger proposal announced by MFS on Friday. MFS is considering proposals for a majority interest in its Stella tourism business.

Takeover target, Rio Tinto Group, which has been fending off a hostile $108 billion bid from BHP Billiton Ltd, fell 7.9%, largest in ten years, after BHP failed to make a new offer.

Speculation had been rife on Friday that BHP would offer 3.5 shares and $16 ($14) cash for each share in London-based Rio at the weekend. Investors acted on the speculation, sending Rio shares up 4.5%.

London-based Times newspaper reported yesterday suggested that BHP might not make a new offer before the February 6th deadline set by the U.K.''s Takeover Panel, the London-based Times newspaper reported yesterday.

The Sunday Telegraph news report suggested that BHP was in ``advanced stages'''' to launch a 65 billion-pound ($127.1 billion) takeover bid for Rio. BHP and Rio Tinto declined to comment.

Fortescue Metals Group Ltd today lodged an application with Australia''s competition regulators seeking third party access to a rail line in Australia''s Robe River iron ore mining region owned by Rio Tinto Ltd. The company said in a statement that the access would open up a number of isolated iron ore deposits in the region to mining.

The application to the National Competition Council to open the Robe River railway comes two months after Fortescue, through its wholly-owned subsidiary Pilbara Infrastructure, lodged similar applications over another Rio rail line in the Hamersley region and BHP''s Goldsworthy line.

BHP has so far attempted unsuccessfully to highlight that the rail line was part of the production process and therefore proprietary. Fortescue wants BHP to give it access to BHP''s 426 kilometers (264 mile) Mt. Newman line.

The Mt. Newman and nearby Goldsworthy rail lines transport about 100 million tons of iron ore each year to Port Hedland on the Indian Ocean. Rio operates a rail network spanning about 1,300 kilometers in the Pilbara and is also against sharing it with other mining companies.

Xstrata Plc, Rio Tinto Group and BHP Billiton Ltd today announced that they have cut coal production at mines in Queensland state due to heavy rain and flooding that may cost the industry and state tens of millions of dollars in lost output and damage.

Xstrata''s coal unit spokesman James Rickards was quoted saying the Newlands open-cut mine had been ``significantly affected,'''' while the Collinsville mine has had ``some impact. Macarthur Coal Ltd. said output at the Coppabella and Moorvale mines is also reduced according to Xstrata spokesperson quoted in Bloomberg.

Rio Tinto shut down its underground Kestrel mine near Emerald on January 17 after rain cut the main road used by workers to travel to the mine, while the mine was not flooded.
BHP''s Melbourne-based spokeswoman Emma Meade said all the operations in the alliance between BHP Billiton and Mitsubishi Corporation had been affected by the rainfall across the Bowen Basin region.

Xstrata Nickel Australia Pty Limited, a wholly owned subsidiary of Xstrata plc (LSE: XTA, ZSE: XTA.S) announces an extension to its takeover offer for Jubilee Mines NL (ASX: JBM.AU) to 7:00pm (Sydney time) 15 February 2008 (unless further extended).

At the time of this announcement, XNA had received acceptances so that it has an interest in 47.57% of total issued shares. XNA intends to review its conditions to the offer by 31 January 2008.

The Australian dollar closed weaker today, shedding gains made over the weekend as weaker than expected inflation data and safe haven flows overshadowed hawkish comments by central bank governor Glenn Stevens. At the close, the dollar was trading at US$0.8741/44, down from Friday''s close of US$0.8761/67.

Of the ASX 200 index shares, Centro Retail Group with a rise of 5.1% followed by increases in Rio Tinto Limited of 4.6%, in Suncorp-Metway of 4.1%, in Westpac Banking of 3.4%, and in Commonwealth Bank of Australia of 3.2%.

Of the ASX 200 index stocks, MFS Limited led the decliners with a fall of 68.9% followed by losses in Paladin Energy of 7.7%, in AED Oil of 7.4%, in Beach Petroleum of 7.4% and in Challenger Finance of 7.3% .


In Tokyo Nikkei 225 Index closed lower 535.35 or 3.86% to 13,325.94, in Hong Kong Hang Seng index decreased 1383.01 or 5.49% closed to 23,818.86, in Australia ASX 200 index declined 166.90 or 2.90% to close 5,580.40.

In South Korea Kospi Index decreased 51.16 or 2.95% to close at 1,683.56, in Thailand SET index closed lower 23.14 or 2.93% to 766.53, and Indonesia JSE Index edged decreased 125.25 or 4.80% to 2,485.88. Sensex index in India decreased 1408.40 or 7.41% to 17,605.35.

In London FTSE 100 Index closed lower 323.50 or 5.48% to 5,578.20, in Paris CAC 40 Index decreased 347.95 or 6.83% to close at 4,744.45 and in Frankfurt DAX index lower 523.98 or 7.16% to close at 6,790.19. In Zurich trading SMI declined 404.84 or 5.26% to close at 7,287.14.