Sterlite Industries has increased its offer price to acquire assets of US-based copper miner Asarco by $170 million to $1.87 billion. This is to counter a revised offer by Grupo Mexico (former owner under whose management Asarco went into bankruptcy protection four years back) which reportedly put in a fresh bid of $2.9 billion (including 1.3 billion in cash against Vedanta’s $1.1 billion cash).
Sterlite had earlier offered $1.7 billion including $1.1 billion cash and rest $600 million through a credit note. Now, Sterlite (a unit of the London-listed Vedanta Resources) has raised the non-cash portion of its bid due to rising copper prices which makes the acquisition attractive.
Sterlite in a statement to BSE, said it will seek shareholders’ approval to issue “appropriate” securities up to 25% of the current outstanding issued and paid-up capital. At Monday’s closing price of Rs 663.45 on BSE, Sterlite could raise upto Rs 11,750 crore. Vedanta had in October revised down its earlier bid price of $2.6 billion citing global credit crunch as also because commodity prices including that of copper had crashed due to global economic slowdown.
Now the ball is in the court of US Bankruptcy Court which will have to decide which of the two bids offers better terms to Asarco's numerous creditors.
Grupo Mexico, which acquired Asarco in a leveraged buyout in 1999, lost board control when Asarco filed for bankruptcy protection. It is now facing court cases over alleged asset striping from Asarco which led the copper maker to bankruptcy. If the Mexican firm finally loses the case it would have to transfer back shares of one of Asarco’s units back to the US firm which could help Asarco come out of bankruptcy.
The two strategic acquirers are also facing a bid from Harbinger Capital, a hedge fund and one of US copper firm Asarco’s largest bondholders, who has offered its own $500 million reorganisation plan Asarco.
Despite offering less than half the cash offered by Sterlite and Grupo Mexico, Harbinger feels it has a better chance of winning. This is because, it feels, Sterlite’s plan cannot be confirmed because it will lack votes from asbestos creditors who have agreed to support Grupo Mexico's plan. Harbinger believes its plan is better than Grupo Mexico's because it would allow Asarco to keep a $6.87 billion judgment against the Mexican miner that arose from a dispute over the transfer of its one-time Peruvian mining unit, Southern Copper Corp. Moreover, it feels Grupo Mexico’s plan cannot be approved because it would allow the Mexican firm to retain control of Asarco.
Harbinger has stated that it would team up with another large bondholder, Citigroup Global Markets, to vote to reject Grupo Mexico's reorganisation plan for Asarco. Harbinger and Citigroup together are owed about $300 million by Asarco. The attorneys of the fund house have indicated that they hope another suitor would offer more before August 31, the deadline set by all stakeholders to reorganise Asarco.
The three plans will be presented to creditors who will vote on the proposals. It is not going to be an easy way out as creditors themselves are split between the plans. Government agencies responsible for cleaning up Asarco’s pollution support the Sterlite sale, while people harmed by the asbestos products of an Asarco unit support the Grupo Mexico plan.