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February 8, 2008

Vale Fires Merrill as a Lead Adviser

by Dave Nixon

Story link: Vale Fires Merrill as a Lead Adviser

The world’s second-largest mining group, Vale, has dropped Merrill Lynch as one of its two principal advisers after the investment bank chose not to facilitate the finance of a prospective $90bn takeover bid for Xstrata, the Anglo-Swiss miner.

According to sources close to the circumstances, Merrill was informed by Vale that it would lose its advisory position in the takeover if it failed to consign a major fraction of its balance sheet to back the transaction. Nonetheless, the bank’s conclusion was that the stipulations of the financing were not economically practicable for both its own or Vale’s shareholders.

In addition to Citigroup and UBS, Merrill has reported enormous writedowns in relation to the crash in the US subprime mortgage market. Nevertheless, Merrill has recently leveraged its balance sheet, financing Royal Bank of Scotland’s €71bn ($105bn) fragment bid for ABN Amro last year.

Merrill backed Iberdrola’s €478m sale of its stake in Galp, the Portuguese energy group, on Friday.

Vale has faced difficulties in securing finance to initiate a take­over of Xstrata as world-wide banks have been incapable of selling liability to investors due to the credit markets chaos. The Brazilian group said it was in negotiations with Xstrata and had engaged in talks with numerous banks about financing last month.

However, many banks are caught up in BHP Billiton’s £65bn aggressive bid for Rio Tinto and lack the capacity to finance two major cash deals.

Hitherto, Vale is understood to have secured financing from Citi, Credit Suisse, HSBC, Lehman Brothers, Santander, Calyon, Royal Bank of Scotland and BNP Paribas. However the Brazilian group has yet to come up with a formal offer to Xstrata, advocating that it still wishes to raise more funds.

Merrill declined commentary whilst Vale could not be contacted.

 

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