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London - Anglo American rejected rival mining group Xstrata's "merger of equals" proposal, knocking a no-premium marriage and a combination with what it regards as Xstrata's inferior mines.
The snub on Monday came a day after Xstrata unveiled its plan and after top Anglo shareholders pressed for a big premium to create a giant to compete in a consolidating mining sector.
Anglo said in a statement "a combination with Xstrata would profoundly impact the nature of the group's portfolio by significantly diluting Anglo American's unique exposure to the structurally attractive platinum, iron ore and diamond markets.
"Irrespective of this lack of strategic merit, the terms proposed by Xstrata were totally unacceptable."
Xstrata came up against another obstacle to its proposal on Monday when South Africa said it feared job losses at Anglo mines if a merger went ahead.
Xstrata, whose market value has risen tenfold since floating in 2002 through a string of takeovers, said on Sunday it asked Anglo for talks about a merger.
Shareholders demand premium
Top Anglo shareholders rejected Xstrata's call for "a merger of equals", betting that initial proposal was just an opening play.
"If they won't pay a premium, they are not going to get anywhere," said one top-20 investor in Anglo who declined to be named. The shareholder was also a top 10 Xstrata investor.
"Takeovers are typically at a premium of 30 percent plus. You would be looking for reasons why it should not be 30 percent - in this case, I don't see any," he said.
South Africa, where Anglo has the bulk of its mines, said it was concerned about the impact on workers and anti-trust issues from the possible combination.
"At face value it raises concerns about competition issues in the industry and a whole host of other issues, as well as the impact on jobs," said Jeremy Michaels, chief communications director at the mines ministry, adding: "Jobs would be the significant concern."
The ministry would seek information from Anglo chief executive Cynthia Carroll at a previously scheduled meeting on Thursday, he said.
Bringing the two groups together would create a group worth $68bn based on Friday's closing share prices, versus BHP Billiton which is valued at $144bnn and Rio Tinto at $74bn.
- Reuters