Sterlite in pact with Asarco for USD 1.7 bn buyout

Metal czar Anil Agarwal-promoted Sterlite Industries on Saturday said it has signed an agreement to acquire America’s 3rd largest copper producer Asarco Llc for USD 1.7 billion,which includes cash payment of USD 1.1 billion. Sterlite would pay the balance USD 600 million (Rs 3,090.5 crore) in form of a promissory note, payable over a span of nine years. “Sterlite has signed a new agreement with Asarco for purchase of substantially all the operating assets of Asarco. The purchase consideration comprises a cash payment of USD 1.1 billion on closing; and a senior secured non-interest bearing promissory note for USD 600 million, payable over a period of nine years,” Sterlite Industries said in a statement. The deal, subject to the approval of US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, is expected to be closed by July-August this year, it added. Vedanta Resources Group Chairman Anil Agarwal said, “This acquisition is in line with our strategy of leveraging existing skills to become a diversified global copper producer and create long-term value for shareholders.” Sterlite, the Indian subsidiary of London-listed Vedanta Resources, had been negotiating the Asarco deal since last year. It had initially offered USD 2.6 billion for buying the assets of the ailing company, which has been in bankruptcy for over four years. However, with devaluation of mining assets and falling copper prices amid the global economic downturn, Sterlite wanted to settle the deal at a lower price and later revised down its takeover bid to USD 2.1 billion. The market was speculating the deal to be clinched at USD 1.5 billion, which would have been just over half the value of what Sterlite had first offered for the target company. For the new agreement, RBS Securities acted as financial adviser while Shearmand & Sterling as legal adviser to Sterlite. Giving a break-up of USD 600 million worth promissory note, Sterlite said it will pay USD 20 million annually from the end of the second year for a period of seven years to Asarco apart from a terminal payment of USD 460 million at the end of the ninth year. However, it added that the deferred payment through promissory note is subject to alterations in copper prices, which at present have gone down by nearly 60 per cent to about USD 3,500 a tonne due to the global industrial downturn. As per the deal, Sterlite said it will acquire Asarco’s three open-pit copper mines and associated mills and SX-EW in Arizona; a copper smelter in Arizona; a copper refinery, rod and cake plants, and a precious metals plant in Texas, the US. The Vedanta group firm added it would assume operating liabilities, but not legacy liabilities for asbestos and environmental claims for ceased operations. The asset acquisition is on a cash free and debt free basis, it said. Asarco, formerly known as American Smelting and Refining Company, is a 110-year-old firm, which sold 2.37 lakh tonnes of refined copper last year. The company’s mines currently have an estimated copper reserves of 5 million tonnes. After acquiring Asarco, Sterlite Industries would become the world’s leading copper producer with a combined production of 7.5 lakh tonnes per annum. At present, Sterlite’s annual copper production is 5 lakh tonnes (including in Africa), which the company intends to double in over three years span. In all, Vedanta Resources has lined up a whopping Rs 70,000 crore investment in its aluminium, copper, zinc and iron ore businesses in India by 2011-12. Of the proposed investment, the company has already invested nearly 50 percent. Post-expansion, Vedanta is poised to become the world’s fifth largest metal and mining company. __www.freshnews.in