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Sterlite Industries Makes $2.56 Bn All Cash Offer For Asarco

11 September, 2009

Within a week of facing a setback with the bankruptcy court in Texas backing rival Grupo Mexico’s bid for as it was “superior” and was “funded with sufficient cash to pay creditors in full”, Sterlite has struck back with 20% higher cash deal and has offered to pay $2.565 billion cash for the US copper miner.

This is almost equal to the original $2.6 billion bid by Sterlite in mid 2008. The drop in copper prices since then led to sharp scale down on valuations but the recent rise in commodity prices has once again made it an attractive buy.

Anil Agarwal-controlled Sterlite Industries on Friday said the new offer will meet 100% of creditors dues and will have surplus cash for smooth operations of Asarco after the transaction.

This more than matches, Grupo Mexico’s bid which consisted of $2.2 billion in cash plus a $280 million promissory note to the creditors. Sterlite had earlier offered $2.1 billion in cash and a put option for Asarco’s asbestos creditors to sell their right in a trust set up to compensate them. The option was valued at $137 million.

Early this month, Sterlite had all but lost its one-and-a half year battle to acquire US copper miner Asarco after the bankruptcy court in Texas (USA) backed the rival bid of Grupo Mexico. Sterlite’s plan relied in part on the proceeds of a legal judgement against Grupo Mexico that’s under appeal.

The final decision will be taken by the District Court of Texas within a month.

Although, this was expected to be just a formality, the revised offer from Sterlite has raised the stakes higher. Another aspect which could go in favour of Sterlite is that Arizona political and business leaders fear negative repercussions of Grupo Mexico regaining control of Asarco. Moreover, the main union representing Asarco’s workers has said it will strike if Grupo takes over, resulting in economic hardship at a time when Arizona and its mining communities, in particular, already are trying to dig their way out of a recession, according to a an earlier report.

Sterlite scrip wihch had moved up since the last judgement(~Rs 647 at NSE) has skid 3% to Rs 743 in early morning trade on Friday after the revised bid.

OFFER AND BACKGROUND

Asarco, which sought bankruptcy protection four years ago, has worked hard to defeat the Grupo Mexico plan. The Mexican company owned Asarco, but lost control in its Chapter 11 case. Most of Asarco’s major creditor groups, and its biggest labour union supported the Sterlite-backed plan, in addition to support from Arizona’s Attorney General.

The take-over battle began after Sterlite emerged as the lead bidder for acquiring Asarco on mid 2008. Grupo, then came up with a $4.1 billion revival package, rivalling Sterlite. The Indian copper company later withdrew from the original offer during the downturn, citing a decline in copper prices, when Grupo had withdrawn from the take-over bid.

Early this year both the bidders returned to the table starting a bidding war which accentuated over the last two months with bids and counterbids. At the heart of the renewed interest on Asarco was rising copper prices.

Last month Sterlite increased its cash offer for Asarco’s assets by about $500 million to $2.1 billion, citing an increase in copper prices. This was to match Grupo Mexico’s $2.2 billion offer.

Asarco, which owns three copper mines in Arizona, is a 110-year-old firm and had filed for bankruptcy protection in 2005 after being sued for $1.6 billion over environmental issues. It is the country’s third-largest copper producer.


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Sterlite Industries Makes $2.56 Bn All Cash Offer For Asarco

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