Copper Deal in U.S. Shows Growing Reach of Indian Firms [WSJ]
By JOEL MILLMAN and DANA CIMILLUCA
May 31, 2008; Page A1
Highlighting the growing global clout of companies from emerging markets, India's Vedanta Resources PLC reached a $2.6 billion cash deal to purchase the assets of a bankrupt U.S. copper miner, Asarco LLC.
The deal, announced Saturday by Sterlite Industries (India) Ltd., a unit of Vedanta, is the latest in a string of foreign deals by Indian companies. The Mumbai-listed metals company outbid three other groups, including Grupo Mexico SA, which first bought Asarco in 1999 but later lost control in a bankruptcy case. Grupo Mexico has said it will challenge the sale.
The sale would mark a turning point for the world's mining giants, creating a showdown between a powerful Latin American group and an Asian rival for control over a historic U.S. corporation.
Flush with cash after years of torrid economic growth and surging commodity prices, companies in developing economies are striking deals that would have been unheard of just a few years ago. In many cases, these companies are snapping up established Western companies that have fallen on hard times. Often, the goal is to create a national champion that will eclipse competitors elsewhere in the world.
As the U.S. credit crunch slows deal-making in the developed world, emerging-market countries such as India and Brazil are taking a larger piece of the mergers-and-acquisitions pie. Emerging-market M&A activity so far in 2008 is up 17% over last year at this time, to $218 billion, while for the rest of the world it is down 43%, to $991 billion, according to Thomson Reuters.
South Africa's MTN Group Ltd. is in talks to buy India's Reliance Communications Ltd. for a price of $30 billion or more, potentially creating one of the world's biggest cellphone companies. Brazilian miner Cia. Vale do Rio Doce earlier this year came close to a $90 billion purchase of Anglo-Swiss miner Xstrata PLC, before the talks broke down over price. In Russia, discussions are under way that could lead to a three-way tie-up between OAO Norilsk Nickel, OAO Metalloinvest and United Co. Rusal. Such a deal would create a Russian national metals-and-mining champion with a value of as much as $160 billion.
Indian companies have been particularly active. Tata Motors Ltd., part of the Tata group of companies, earlier this year agreed to purchase the Land Rover and Jaguar brands from Ford Motor Co. for $2.3 billion. Last year, Tata Steel Ltd. bought the Anglo-Dutch steel company Corus Group PLC for about $12 billion.
The sale of Asarco, which will be part of an overall settlement of creditors' claims against Asarco, remains subject to approval by the U.S. bankruptcy court in Texas.
Though Vedanta shares are listed on the London Stock Exchange, the bulk of the company's assets are in India. Chairman Anil Agarwal and his family control the company, whose share price has surged about 70% in the past year. The company had sales of $8.2 billion in the 12 months ended in March.
Vedanta produces aluminum, copper, zinc and lead, with copper operations in India and smelting and refining operations in Zambia. The company has generally shied away from acquisitions, but the few it has made—including the 2004 purchase of a majority stake in Zambia's Konkola copper mines—have paid off quickly.
Mining companies are searching the world for new deposits at a time of rising prices. Acquisitions are a quick way to add to their stores. Indian companies are especially vying for a piece of the world's minerals, as India's economy grows. The country is already having trouble finding enough iron ore to fuel its busy steel mills.
The battle for control of Asarco began in 1999. That is when Grupo Mexico, a family-owned Mexican construction-and-mining conglomerate, surprised Wall Street by outmaneuvering a U.S. rival, Phelps Dodge Corp., to grab Asarco in a hostile takeover.
Asarco was facing outstanding claims by federal and state governments involving environmental damage after a century of mining across the western U.S. In the years after it bought the company, Grupo Mexico shifted Asarco's profitable mining interests controlled by its U.S. unit into the Mexican parent's other corporate holdings. In 2005, Grupo Mexico placed Asarco in Chapter 11 protection under the U.S. Bankruptcy Code.
[asarco]
Asarco's court-appointed management sued the Mexican company, alleging that it stripped Asarco of assets to avoid paying the cleanup bill. That civil suit is currently being heard in a Texas court and could lead to damages of as much as $10 billion.
Sterlite said it will assume operating liabilities, but not Asarco's liabilities for asbestos and other environmental claims for closed operations.
Jorge Lazalde, vice president and general counsel for Asarco Inc., the Grupo Mexico entity that is the nominal owner of Asarco LLC, denied the asset-stripping claim and said the suit is a legal tactic designed to damage Grupo Mexico.
Grupo Mexico contends the court-ordered auction for Asarco was flawed. The company insists it offered to pay Asarco creditors in full when initial bids were submitted in April and says that should trump any outsider's attempt to buy Asarco's assets. "The bottom line is we're offering full payment, and they never even read our proposal," said Mr. Lazalde.
Asarco's attorneys say Grupo Mexico can't know the value of what "paid in full" will be until all environmental litigation is settled, which could take years.
Today, Asarco runs refineries and mines in Texas and Arizona only. Former Asarco sites across the West have been the subject of disputes involving potential contamination. Earlier this year, New Mexico challenged the reopening of an Asarco smelter in El Paso, Texas, near the New Mexico border. It was closed in 1999, but Asarco wanted to reactivate it because of high global prices for copper. |
