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RIO DE JANEIRO - Brazilian mining giant Vale said yesterday it was in talks with Anglo-Swiss rival Xstrata about a takeover, a deal analysts said could top US$100 billion ($135 billion) in one of the biggest mergers ever.
Vale, the world's largest iron ore producer, said launching what would be the largest takeover ever by a Brazilian company depended on market conditions. Vale shares slumped 9 per cent on the news, also hit by a sell-off in global markets caused by fears of a US economic recession.
The deal would be the latest in a wave of large companies from emerging economies scooping up rivals in Europe and North America. In 2006, Vale bought Canada's Inco for US$17 billion after a revenue boost stemming from high world iron ore prices amid red-hot demand in China.
Vale said market conditions "may constrain the realisation of a major strategic move" and that it will not stray from its "prudent posture."
It also said it was analysing other acquisition options around the world.
Xstrata's shares initially rose on the news but then dropped to close 5.47 per cent lower.
Vale's announcement came after Valor Economico and O Estado de Sao Paulo newspapers reported that the miner was in advanced talks with a group of banks to line up financing for the deal. Both reports valued the deal at up to US$90 billion.
Vale did not comment on reports that it is in talks with Xstrata's biggest shareholder, privately-held commodities trader Glencore, to accept up to US$30 billion in voting shares as part of the payment, with the rest in cash.
With Xstrata, Vale would gain a greater presence in metals such as copper and nickel. But it would also be exposed to high volatility, which may undermine cash flows when it has to pay back loans taken for Xstrata, analysts said.
- Reuters
