Xstrata rejects US$76 billion informal bid from Vale

Xstrata rejected a US$76 billion takeover approach from Cia Vale do Rio Doce

Xstrata plc has rejected a US$76 billion takeover approach from Cia Vale do Rio Doce, the world`s biggest iron-ore producer, the Financial Times said, citing unidentified people familiar with the offer.

Xstrata and Glencore International AG, owner of 34.45% of the Switzerland-based company, dismissed the cash and share offer, valued at about £40  (US$78.03) a share, and are holding out for a bid closer to £45, the newspaper reported.

A successful bid would catapult Vale past BHP Billiton Ltd as the world`s largest mining company and add Xstrata`s copper, coal and zinc output to its nickel and iron-ore production. Record prices for commodities are fueling takeovers such as BHP`s hostile US$132 billion bid for Rio Tinto Group.

"Vale could get in some controversy if they paid too much," Chuck Bradford, an analyst at Soleil Securities Corp in New York, said on February 11 from New York. "It`s something Vale wants to be very careful of."

Xstrata fell 1.8% in London yesterday to £38/share, valuing the company at £37.2 billion. Xstrata shares have gained 7.2% this year, while Vale shares have dropped 6.4% over the same period on the Sao Paulo Stock Exchange.

Fernando Thompson, a Rio de Janeiro-based spokesman for Vale, declined to comment when contacted by phone other than referring to the company`s January 21 statement in which it said it had held talks with the company. Xstrata doesn`t comment on rumor or speculation, spokeswoman Sue Sara said February 12 by phone from Brisbane, Australia.

Vale is close to walking away from the talks, the Financial Times reported, citing a person close to Vale. Differences in recent share price movements has also sparked disagreements in talks, the paper reported.

Vale, which paid US$17.4 billion for Canadian nickel producer Inco Ltd last year, said January 21 that no "material result" had come from its approach and tumbling stock markets worldwide make a deal more difficult to complete.

BHPB`s hostile bid for Rio Tinto has added "momentum" to mining takeovers, Xstrata Chief Executive Officer Mick Davis said December 6. Since BHPB`s initial bid in November, Aluminum Corp of China and Alcoa Inc have acquired stakes in Rio Tinto to block a takeover.

On February 6, BHPB raised its bid, which was again rejected by Rio Tinto. "There is a benefit by combining these two companies," Soleil`s Bradford said. "The more diversified companies like BHPB and Rio Tinto are at a much higher value."

Xstrata`s Davis has developed the company`s copper and nickel mining capacity through acquisitions, including the US$16.2 billion purchase of Canada`s Falconbridge Ltd in 2006. Vale has operations adjacent to Xstrata in Canada`s Sudbury basin and on the French-controlled Pacific island of New Caledonia. Vale and Xstrata have plans to expand nickel output further and said in early 2007 they were in talks to co-operate on transportation and other operations at Sudbury, 350Km north of Toronto.