LEX When a high-stakes deal falls apart, mind the spin. On Tuesday the UK’s Xstrata and Brazil’s Vale announced that takeover discussions had been terminated. Each miner said the deal would have realised “significant value for both sets of shareholders”. But where Xstrata stressed that walking away was by mutual agreement, Vale’s release said no such thing.
Both sides would like the market to think the other is to blame. But the arguments doing the rounds do not wash. For a start, it is unlikely that Glencore, a Swiss resources partnership with a 35 per cent shareholding in Xstrata, is the sole stumbling block. Glencore simply does not earn enough from commissions and services provided to Xstrata, relative to either its total profits or the value of its stake, to justify scuppering a deal to save these income streams.
Meanwhile, the Xstrata camp is cheeky to point to Vale’s recent share price decline as a possible culprit. From Vale’s informal offer on January 21 until Tuesday’s close, both companies’ stocks had risen 3 per cent in local currency terms. Even going back to Xstrata’s announcement in December that it was in talks with various parties (read Vale), Xstrata’s performance is only 7 per cent better. In any case, it seems likely that a big part of any consideration would have been cash, reducing the deal’s sensitivity to share prices.
That leaves three plausible reasons for the impasse. First, the companies were genuinely stuck on price. But that should have been surmountable, assuming Xstrata management wanted out. Another possibility is that Vale’s secured funding has become less so. The best explanation, perhaps, is that, with a weakening outlook, Vale can be patient. That Xstrata’s share price was down only 5 per cent on Wednesday suggests that the market expects Vale to be back.
