And so the bear hug begins.
17 June 2009
Strictly Private and Confidential
The Chairman and Chief Executive
Anglo American plc
20 Carlton House Terrace
London SW1Y 5AN
United Kingdom
Dear Mark & Cynthia,
We have for some time considered that the combination of our companies is a compelling, value-adding proposition for both sets of shareholders and would provide a combined management team with fresh and expanded value-creating opportunities, which are not available while the companies operate independently of each other.
It is well accepted that the pursuit of scale and diversity as prerequisites for success has set our industry on an irreversible trend of consolidation. The recently announced iron ore joint-venture between Rio Tinto and BHP Billiton is yet another milestone on this path. In future, only the largest and most diverse global mining groups will generate superior returns for their shareholders by gaining access to capital, the most attractive resources and the best talent, while better managing the increasing complexity and risk associated with our industry. A combined Anglo American/Xstrata will be well placed to compete with major industry peers such as BHP Billiton, Rio Tinto and Vale for these key ingredients for success.
It is against this backdrop that we write to you to request that your Board consider the combination of our two companies to create a mining and metals giant with the essential characteristics to compete successfully and deliver superior returns, benefiting our shareholders and customers.
In the past we have only made informal approaches to discuss a potential transaction, but given recent market and industry developments, we are firmly of the opinion that the combination warrants detailed consideration. Our two companies are uniquely aligned in size, earnings and assets (Appendix 1).
We share ownership of key assets in coal and copper and have very significant realisable synergies which can be delivered to shareholders only when our two companies are combined.
Moreover, we believe the transaction will create positive market momentum from which we will be able to secure additional capital from traditional and new investors to strengthen the balance sheet, support further growth and resume regular dividend payments. The Board of Xstrata has approved the submission of this letter to your Board [redacted].
The rest of the letter (complete with more redaction) can be found here. Click here for the accompanying statement.
Upate:
Xstrata targeting $1bn of annual synergies from the following:
Over US$458m per annum of operational synergies, including optimisation of proximate operations, in particular from our substantial coal businesses with regional scale in Australia and South Africa and our proximate copper interests in Chile; logistical synergies, optimisation of product flow and quality, procurement improvements and rationalisation of overlapping activities in our coal, copper, zinc and PGM businesses. In addition, we have identified a number of potential longerterm project synergies not included in our initial synergy estimate;
Some US$237m per annum in savings from streamlining our divisional functions and offices in our coal, copper and PGM businesses; and
US$309m per annum of synergies through the creation of an effective, streamlined set of central functions and services, such as insurance, exploration, technology and other corporate functions, selecting the best practice in each case from our respective organisations.
Related links:
Anglo investors press for Xstrata talks – FT