Xstrata shares dropped more than 12 percent at the opening, after the two firms said late on Tuesday they failed to agree on terms of what would have been one of the world's biggest takeovers, valued by some analysts at $90 billion.
LONDON (Reuters) - Shares in Anglo-Swiss miner Xstrata <XTA.L> tumbled on Wednesday after the collapse of talks with Brazil's Vale <VALE5.SA> to buy the company and forge a massive mining group.
Xstrata shares dropped more than 12 percent at the opening, after the two firms said late on Tuesday they failed to agree on terms of what would have been one of the world's biggest takeovers, valued by some analysts at $90 billion.
But the failure of talks threw open the possibility of a fresh wave of merger pairings in a booming sector driven by heavy demand from China for metals.
Vale, the world's biggest iron ore producer, said it would look at other potential takeover targets while analysts said Xstrata was now open for fresh approaches.
!ADVERTISEMENT!"You could easily see a big Chinese industrial looking to diversify showing an interest in Xstrata, or even Russia's Norilsk <GMKN.MM>, with an eye on Xstrata's extensive nickel assets," said DJ Carmichael & Co analyst James Wilson.
Chinese aluminum giant Chinalco may be interested, given its stated interest in diversifying and access to ample funds, Wilson said. Chinalco last month teamed up with Alcoa from the United States to buy a $14 billion stake in Rio Tinto.
Xstrata shares were trading 9.2 percent weaker at 33.74 pounds at 5:14 a.m. EDT, compared to a 1.2 percent fall in the UK mining index <.FTNMX1770>. Vale shares in New York <RIO.N> closed up 3.97 percent at $33.01.
MARKETING RIGHTS
Vale Chief Executive Roger Agnelli said the talks collapsed over a dispute over future marketing rights.
Xstrata's main shareholder, commodities trader Glencore International <GLEN.UL>, holds marketing rights to a large chunk of Xstrata's output in nickel, copper and other metals.
And it wanted to expand its rights in the merged company, something Agnelli has said would be difficult to swallow given Vale's relationship with its customers.
"While Vale and Xstrata continue to believe that a combination of the two companies could realize significant value for both sets of shareholders, we have not been able to reach an agreement," Xstrata <XTA.L> Chief Executive Mick Davis said, without giving a reason for the breakdown in talks.
Agnelli denied talks were scuppered by financing problems. Its takeover attempt has coincided with sharp volatility in global equity and credit markets.
In preparation for a potential Xstrata takeover, Vale had lined up about $50 billion in financing from banks including Santander, HSBC, BNP Paribas, Lehman Brothers, Credit Suisse, Citigroup, Calyon and Royal Bank of Scotland.
"We didn't need to buy and they didn't need to sell," Agnelli said late on Tuesday at a news event in Sao Paulo.
BHP-RIO
The softening in Vale's shares since a peak in October was the main reason the talks flopped, a source in London close to the deal said. That cut the value of the stock portion of the deal and the global credit crisis would have made it difficult to raise additional cash, he said.
Progress had been made over marketing rights but there was no point continuing talks if Vale was not able to pay enough, he said.
The failure of Vale's attempts to buy Xstrata threw open the question of whether the sector's biggest player BHP Billiton <BLT.L> would be successful in its bid to swallow rival Rio Tinto <RIO.L>.
Rio <RIO.AX> has spurned an all-share offer from BHP <BHP.AX> worth around $147 billion as undervaluing the firm and its expansion plans.
(Reporting by Eric Onstad, Reese Ewing, Roberto Samora, Todd Benson, Daniela Machado, James Regan in Melbourne and Aluisio Alves in Sao Paulo; Editing by Quentin Webb)
