Anil Agarwal-controlled Sterlite Industries has 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 as it was “superior” and was “funded with sufficient cash to pay creditors in full at confirmation.”
Sterlite’s plan in contrast relied in part on the proceeds of a legal judgement against Grupo Mexico that’s under appeal. Now the final decision will be taken by the District Court of Texas in 4-6 weeks.
Although, this is expected to be just a formality, one aspect which could yet create complications is that Arizona political and business leaders fear negative repercussions if Grupo Mexico regains control of Asarco. Moreover, the main union representing Asarco’s workers 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 report.
In its ruling the bankruptcy court at Corpus Christi in Texas recommended the district court judge to confirm the Grupo Mexico’s plan and reject Asarco’s own plan, which is sponsored by the Vedanta group company Sterlite.
Sterlite scrip has dropped 4% since the judgement came late on Monday and is trading at Rs 647 at NSE in early trading hours on Wednesday. Grupo Mexico’s scrip in contrast jumped 14% to 22.03 pesos in Mexico City trading, the most since November 2008.
OFFER AND BACKGROUND:
Grupo Mexico’s offer consisted of $2.2 billion in cash plus a $280 million promissory note to the creditors. Vedanta 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 is valued at $137 million.
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company later withdrew from the original offer during the downturn, citing a decline in copper prices, when Grupo had withdrawn from the take-over bid.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 week 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.
COULD JOB ANGLE TURN THE TIDE FOR STERLITE?
A chief concern for many southern Arizona leaders is jobs. The United Steelworkers, which represents about 1,700 of Asarco’s 2,500 workers, said it would strike if Grupo regains control.
The union issued a statement on Tuesday saying the bankruptcy court’s recommendation was a mistake and that it plans to file pleadings with the court opposing the move.
The union had negotiated a deal with Sterlite in which the current bargaining agreement covering workers set to expire in June would be extended to June 2013. Grupo had apparently offered to extend it to 2011 although it did not strike an agreement with the union.