The UK Sunday Times reported yesterday that Xstrata’s “merger of equals” bid was likely to be ditched in the next few days after the Takeover Panel gave Xstrata until 20 October to “put up or shut up”.

Such a decision would not be particularly surprising since convincing shareholders to agree to a merger or takeover without paying a control premium is a tough sell at the best of times. The financial crisis and Xstrata’s financial position rule out changing the initial “merger of equals” into an ordinary takeover.

From Xstrata’s point of view, pursuing a hostile takeover could prove expensive, distracting and realistically would only have a limited chance of success.

Yet, even in victory, the effect of the bid on Anglo, the venerable company that once controlled between 40% and 60% of the Johannesburg Stock Exchange, is likely to be sobering.

Even the notion that a hostile takeover of Anglo is conceivable demonstrates how much the company has slipped. Once one of the “big three” mining companies of the world, by market capitalisation, it is now half the size of Rio Tinto and a quarter the size of BHP Billiton. It’s also only marginally larger than Xstrata.

But Anglo’s victory may only be temporary, since the “put up or shut up” order only lasts six months and some analysts believe the value of the minerals that Xstrata predominantly mines will grow faster than Anglo’s over this period.
Consequently there may be an implicit “I’ll be back” in Xstrata’s decision to walk away from the deal.

On the other hand, Xstrata might find a more resolute competitor in six months’ time. A typical consequence of a failed takeover bid is that the target becomes rejuvenated by the threat.

Anglo already has a new chairman in a veteran city player Sir John Parker, who has successfully managed to paint the bid as an attempt to take advantage of board and company tensions caused by change-averse, troglodyte South Africans resisting necessary reforms introduced by CEO Cynthia Carroll.

By Tim Cohen