MAC/20: Mines and Communities

US bidding intensifies, as two bad companies vie for a third

Published by MAC on 2009-08-25

Although overshadowed by its "battle for Nyamgiri", Vedanta Resources' bid for US copper company, Asarco, is probably just as important a strategic priority for the UK company.

Notorious hedge fund manager, Philip Falcone, is rumoured to be backing Vedanta in the bid. He's the guy who set up Harbinger Capital, which helped bring UK insurance, banking and mortgage provider, HBOS, to its knees last year. Falcone was consequently dubbed by Britain's populist Daily Mirror newspaper as "a greedy pig US billionaire". In his own way, he's just as ruthless as Vedanta's big boss, Anil Agarwal.

So, it's no surprise that these two vipers are slinking together, intent on feathering each other's nests.

The following article, posted on Gujarat-based Venture Capital Circle website, neatly summarises the "dilemma" now being faced by a US judge, who's shortly to decide  whether Asarco - historically the most polluting and deadly copper company in the US - should end up in the hands of Vedanta. Or whether it should be consigned to Mexico's largest mining company: asset-thief, and notorious strike-breaker, Grupo Mexico.

Vedanta is aiming to take over Asarco's viable working mines and plant, and (explicably, if not justifiably) is backed by the main US mineworkers union, the USW.

Grupo Mexico wants control over the company's assets, and seems to be supported by thousands of asbestos victims who regard the lumbering outfit as a better bet than Agarwal when it comes to settling thousands of outstanding injury claims.

Certainly Grupo Mexico is, on the face of it, offering a better all-round deal in purely monetary terms - and one that Vedanta isn't likely to out-match before a final off-loading of the loot and the liabilities.

Talk about having to choose between the devil and the deep, dark, sea!

[Comment by Nostromo Research, 23 August 2009]

Harbinger Withdraws From Asarco Race; May Back Sterlite

Venture Capital Circle

5 August 2009

Now, two key contenders India's Sterlite and Grupo Mexico are in the race to gain control of Asarco.

Harbinger Capital, a hedge fund and one of US copper firm Asarco's largest bondholders, has decided to withdraw from the race to take-over Asarco. This leaves the two key contenders India's Sterlite and Grupo Mexico in the race to gain control of Asarco, according to this report

Sterlite may get the support of Harbinger Capital Partners in its take-over plan.

Although the report did not state any reason why Harbinger may back Sterlite, it is well known that the hedge fund (which has support from Citigroup), earlier extended its support to Asarco in the fight against Grupo Mexico and the environmental suits. Citigroup and Harbinger together comprise Asarco's largest bondholders and their support is crucial for Sterlite. It had also said that it would oppose Grupo Mexico's bid.

BIDS AND COUNTERBIDS:

Harbinger earlier proposed a $500 million take-over offer to the US bankruptcy court in May, countering the bids of Sterlite and Grupo Mexico, the former owners of Asarco. The fund house had termed Sterlite and Grupo Mexico as ‘unreliable suitors' while making its own proposal at the Southern District court of Texas.

Asarco, which filed for bankruptcy in 2005 with over $1 billion in environmental damage and asbestos claims, is seeking to sell assets as part of a bankruptcy reorganisation  plan. Sterlite had offered $1.1 billion in cash and a $600 million note. Mexican miner Grupo Mexico, which acquired Asarco in a leveraged buyout in 1999 but lost board
control of the company due to the bankruptcy, has made a $1.55 billion competing offer for Asarco (including $1.3 billion in cash).

Sterlite Industries had recently increased its offer price for Asarco by $170 million to $1.87 billion to counter a revised offer by Grupo Mexico 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 raised the non-cash portion of its bid due to rising copper prices which makes
the acquisition attractive.

WHO'S AT ADVANTAGE?

Despite offering less than half the cash offered by Sterlite and Grupo Mexico, Harbinger felt it had a better chance of winning. This is because, it felt, 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 judgement 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.

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.

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