The acquisition includes three open-pit copper mines and a copper smelter in Arizona and a copper refinery, rod and cake plant as well as a precious metals plant in Texas, on a debt-free basis. Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations. Sources close to the deal say the structure was developed to protect the buyer from any fallout from litigation pending against Asarco.
Asarco (previously American Smelting and Refining Company) is over 100 years old and the third largest copper producer in the US with production of 235,000 tonnes of refined copper in 2007. AsarcoÆs mines currently have estimated reserves of approximately five million tonnes of contained copper. For calendar 2007 Asarco had revenues of approximately $1.9 billion.
Sterlite won the deal in a closed auction. Bidders submitted offers in April and the winning bid was selected on May 23. The procedure had to comply with US bankruptcy rules as Asarco filed for bankruptcy under Chapter 11 in 2005 as a result of asbestos-related liabilities, citing 95,000 claims pending against the company and its subsidiaries. Asarco was advised on the sale by Lehman Brothers and Baker Botts.
ôThe proposed acquisition by Sterlite is a significant and timely step in their international growth plans and we are delighted to be SterliteÆs sole adviser," says Madan Menon, the head of global banking and markets for India, who is on secondment from RBS in Singapore to ABN AMRO, India. Menon also noted the enlarged global network of RBS, following its takeover of ABN AMRO, suggesting this had enabled the bank to offer Sterlite seamless execution across India, the UK and the US.
But speculation is rife that Grupo Mexico, AsarcoÆs largest shareholder, may try to put a spanner in the works and contest the award of AsarcoÆs assets to Sterlite. Grupo Mexico mines gold, silver, copper, zinc and molybdenum. It bought Asarco for $2.5 billion in 1999, narrowly beating competing bidder Phelps-Dodge to the finish line, in an outcome that saw Asarco pay Phelps-Dodge a $30 million break free for terminating its merger agreement with Phelps. Grupo Mexico went on to sell AsarcoÆs specialty chemicals and aggregates divisions and restructure some of the remaining assets, but it lost control of the business following the bankruptcy.
Grupo Mexico was reportedly in the fray for Asarco in the latest auction and a spokesperson for the company told media on Sunday it could still challenge the award to Sterlite. Some analysts commented subsequently on Monday that they did not believe Grupo Mexico had much of a legal case, given that Asarco is a Chapter 11 company.
Sterlite is IndiaÆs largest non-ferrous metals and mining company with interests in aluminium, copper, zinc and lead. It is a subsidiary of London-based Vedanta Resources. ôThis proposed landmark transaction by the Vedanta Group reinforces the global ambition levels of leading Indian corporates," says Manoj Agarwal, ABN AMROÆs head of global corporate finance for India.
Sterlite will use cash on its balance sheet and raise some debt to finance the acquisition, say sources close to the deal. Sterlite is sitting on a war chest after raising $2 billion in June 2007 from its first ever sale of American depositary shares (ADS). The sale was timed well and received good demand, primarily from long-only investors. Sterlite achieved a price of $13.44 for each ADS, equal to Rs544.40 and on par with where its shares traded in India at the time. The capital-raising followed a convertible bond issue by Vedanta in January 2006, which raised $725 million.
Others parties that allegedly submitted bids for Asarco include AsarcoÆs bondholders, hedge fund Harbinger Capital and Citi. Timing may have played in SterliteÆs favour as some other bidders, such as private equity firms, could have found it difficult to raise financing in the current tight credit environment.
Indian metals company Hindalco, owned by Kumar Mangalam Birla, could have potentially been a competitor but it is still digesting its $6 billion acquisition of Novelis of Canada, which it announced in February 2007. Indeed, later this year, Hindalco will be refinancing a $3.1 billion debt facility provided by ABN AMRO, Bank of America and UBS to part-finance the deal. This pre-occupation could have played a role in keeping Hindalco away from the table for Asarco.
Sterlite was advised by ABN AMRO corporate finance, which is part of the RBS group, and Shearman & Sterling. ABN AMRO continues to cement its position in India M&A and RBS is expected to put its balance sheet to work to secure debt financing for Sterlite. The deal is the largest cross-border outbound deal from India to date, eclipsing the $2.3 billion Tata Motors paid in March for FordÆs Jaguar and Land Rover businesses.
SterliteÆs shares closed at Rs917 on the Bombay Stock Exchange yesterday, down 2% and mirroring the 2.15% drop in the benchmark Sensex index, which reportedly traded down on cues from weak European markets. Vedanta closed at ú2.49 ($4.93) on the London Stock Exchange, down 0.4%.
¬ Haymarket Media Limited. All rights reserved.
