November 22, 2008
Sterlite Asarco deal hinges on US court ruling
ET reported that Sterlite Industries may have signed a definitive agreement to acquire assets of the bankrupt copper miner Asarco for USD 2.6 billion on May 31st 2008, but the proposed transaction will be cancelled if the US bankruptcy court in Texas does not approve it.
This acquisition is different from standard M&A deals where the buyer purchases a company or an asset from the seller. Asarco had gone out of control of its parent Grupo Mexico when the company filed bankruptcy in 2005. The independent Asarco board had put the company on the block nearly a year ago and Sterlite emerged as the highest bidder through an auction, outbidding some others including Grupo Mexico, last month for its assets without its legacy liabilities. The deal is subject to the clearance of the bankruptcy court.
The proposed transaction snowballs into a competitive bidding with Grupo Mexico coming out with a USD 4.1 billion proposal last week for the entire Asarco, including its liabilities, and now even enhancing its offer. Grupo Mexico has now sweetened its last week’s offer by announcing that its wholly owned subsidiary American Mining Corporation will guarantee for additional payment of USD 2.7 billion if the creditors demand exceeds what is envisaged in its earlier plan. The previous plan envisages putting up USD 2.7 billion to pay off the claims, use USD 1 billion Asarco has on hand and then put in a further USD 440 million, if needed.
Asarco faces up to USD 5.3 billion in claims for asbestos and to clean up copper mining and smelting sites across in US. It has 3 mines in Arizona and produced 235,000 tonnes of refined copper in 2007. It has about 5 million tonnes of contained copper in proven reserves.
On the other hand, Asarco has been fighting a lawsuit against Grupo Mexico for allegedly transferring the company’s 54% stake in Southern Peru Copper Corporation to American Mining Corporation in 2003. In the lawsuit, Asarco has demanded 30% stake in the Peruvian mines, estimated at USD 9.6 billion. It also wants USD 1.7 billion the dividends the mines paid to Grupo Mexico since 2003. The trial of this case is over and the judgment is expected to be out in August 2008.
Sterlite is keen on sailing through its largest overseas acquisition while Grupo is desperate to bag Asarco to avoid a potential adverse ruling on the alleged stripping off asset lawsuit. The Sterlite bid received the support of the trade union.
The Asarco board also requested the bankruptcy court to approve a USD 52 million break up fee Sterlite wants which Grupo opposed. Both the parties, as it appears, have positives and negatives.
