Xstrata confirms Anglo American merger plans

Global miner, Xstrata, has confirmed that it has recently sent a written proposal to the Board of rival, Anglo American, seeking consideration of a “merger of equals”.

Xstrata believes the reasons for such a move are “highly compelling”, given the companies’ complementary assets.

According to the group, it would create a “portfolio of operations diversified across multiple commodities and geographies” and provide the financial flexibility to fund future growth.

Substantial operational savings could result, that are not available to either company operating alone and Xstrata proposes that a merger would also realise significant value for both companies’ shareholders.

According to press reports, the combined group would be worth around £41 billion.

New of the proposed merger comes a couple of weeks after Rio Tinto announced that it was abandoning plans for Chinalco to increase its stake in the business, having opted instead for a $15.2 billion rights issue and a cost saving joint venture with BHP Billiton.

Rio and BHP are in the process of combining their major iron ore operations in Western Australia and will achieve substantial savings as a result.

Analysts suggest that Xstrata’s approach to Anglo American may have been prompted by the agreement as the combined groups would be better placed to compete with the Rio/BHP joint venture.