Vale and Xstrata Part Reluctantly

Brazil’s Vale has terminated talks on a takeover of Swiss miner Xstrata that could generated $90bn in M&A volume. Optimism among investors and bankers was running high for a deal up until Tuesday, when the companies jointly announced the termination. Using language that clearly indicates disappointment, the pair emphasized that the deal would have created shareholder value, but that an agreement could not be reached. However, they left significant wiggle room for a return to the negotiating table. Vale reserves the right to make an offer for Xstrata within the next six months if Xstrata’s board agrees to one or if there’s a competing bid, while Xstrata believes a deal creates value for both sides. Glencore, which owns 35% of Xstrata, appeared to be the only block, pushing for marketing agreements Vale was not willing to give. A deal could still take place soon, speculates one investor, who points out Glencore may still decide it is willing to sell its stake for an estimated $25.5bn. Vale has already lined up loan financing of up to $50bn to support the cash portion of a bid. That includes tenors ranging from 18 months to 7 years, with margins over Libor from 60bp to 150bp. JPMorgan and Deutsche Bank are advising Xstrata. Glencore is heard to have hired Citi and Morgan Stanley while Credit Suisse is understood to be among Vale’s advisers.