Xstrata, which formally launched its "merger of equals" bid for rival mining group Anglo American yesterday, is pinning its hopes on Anglo's new chairman, Sir John Parker, being persuaded by investors that the deal makes sense.
Sir John, who took over at Anglo American last week, has scheduled a number of meetings with large investors in the coming months, which Xstrata's chief executive, Mick Davis, is hoping will lead to Anglo's board taking a more favourable view of Xstrata's approach. So far Anglo's management, led by its chief executive Cynthia Carroll, has described the bid, which would see the Swiss-based company taking a 51 per cent stake in a combined group as "totally unacceptable".
A number of Anglo America's investors are thought to favour a tie-up, and some analysts had expected Mr Davis to use yesterday's announcement of Xstrata's half-year results as an opportunity to sweeten the terms of the bid, which were first leaked six weeks ago. "One thing that Mick Davies did not show among his slides at yesterday's analyst presentation was the relative market capitalisations of the two groups," said Charles Kernot, a mining analyst at Evolution Securities. "As things stand at the moment, Anglo is worth about £1bn more. As such we have something of a stalemate."
However, an Xstrata spokesperson denied that Mr Davies had omitted details of the two company's market capitalisations, but conceded that the process could take as long as two years to resolve. "It is necessary to discount part of Anglo's market capitalisation that is tied-up in employee benefit schemes. Taking that into account, the 51/49 split of the proposal is fair."
Xstrata argues that a combined group would be less exposed to the cyclical nature of the mining sector. Xstrata has large copper and coal assets, which it argues will recover quicker than Anglo's platinum and iron-ore assets. But Anglo also has a strong interest in coal, and points out that in the past Xstrata has declined to take part in proposed joint ventures.
Xstrata's formal bid was launched as the group said that earnings per share in the first six months of the year fell 77 per cent, to $1.66, blaming weak commodity prices. The numbers, which were "every bit as bad as the figures already reported by its competitors," according to Mr Kernot, sent the shares down by more than 2 per cent to 847p.
Last week, Anglo American reported a drop in profits of more than two-thirds for its first half.