Anglo American rebuffed Xstrata's takeover approach tonight, issuing a withering assessment of its rival's "totally unacceptable" offer which makes any future deal more unlikely.
Anglo American said that it did not want to "dilute" its portfolio of more expensive and valuable commodities such as diamonds and iron ore with Xstrata's lower value zinc and nickel.
In the damning statement published tonight, the South African-based miner said that the approach was unattractive to its shareholders and "lacked strategic merit".
Since Xstrata last week proposed a merger without any premium to Anglo shareholders, the miner added that the terms were "totally unacceptable".
By attacking the strategic logic of any combination – as well as the terms – Anglo's chief executive Cynthia Carroll has also signalled that further overtures from Xstrata would be unwelcome and likely to be rejected.
Xstrata's chief executive Mick Davis is said to be reluctant to make a hostile bid for Anglo because it would further complicate dealings with competition authorities.
But even if another approach from Xstrata – or another predator – does not materialise, Carroll is still facing pressure to improve Anglo's performance, the Guardian has learned. One of its largest shareholders, Old Mutual, with 2.6% of its shares, urged her to raise up to $3.3bn (£2bn) by selling half of its iron ore miner, MMX. Carroll bought the Brazilian firm only last year, but the credit crunch and falling commodity prices have forced miners like Anglo to delay investment in new projects.
Anwaar Wagner, head of resources at Old Mutual fund management firm, told the Guardian that the proceeds of a sale should be used to bring forward some of Anglo's new projects so the firm could benefit when commodity prices recover. "We strongly encourage Anglo to find a co-investor - up to 50% - in its MMX investments. If Anglo gets close to a cost price, it could bring forward some of its best high-quality projects, like the Los Bronces copper project. Finding an equity partner for MMX would deliver substantial value for the company."
Tonight, Xstrata issued a terse statement responding to Anglo's rebuttal. "We are disappointed by Anglo American's rapid rejection of our proposal for an all-share merger of equals. We are also surprised that the Anglo American board has not seen fit to engage with Xstrata to discuss our proposal in view of the substantial value for both companies' shareholders that would arise uniquely from a merger of the two companies."
Anglo shareholders had urged the board to reject Xstrata's advances. They also backed Carroll, who analysts said had been the victim of a "whispering campaign" orchestrated by disaffected company insiders and South African industry figures who resented an American woman running the company. Recent newspaper reports in the UK have quoted anonymous Anglo shareholders criticising Carroll and urging Davis to take over the miner and run the combined group.
David Winters, chief executive of Wintergreen Fund, which owns about 1% of Anglo, said: "She is a very good manager. It's interesting to see that none of the shareholders reported to be criticising her in the press have any names attached."
Old Mutual's Wagner added that changes made by Carroll since she took over two years ago were starting to bear fruit. "Some of the problems such as safety issues and the performance of Angloplat [a subsidiary] were present before she joined. To expect her to wave a magic wand and turn it around overnight would be unfair. We are seeing initial signs of the benefits coming through as a result of the changes she has made, although clearly we would like to see more and as soon as possible."
Charles Kernot, analyst at broker Evolution Securities, said the campaign against Carroll was run by people "with too much time on their hands who were shocked when a North American woman was appointed to run what they see as South Africa's biggest and best company".
It was unclear tonight whether Xstrata would improve its offer for Anglo. Analysts said it would be difficult for the company to raise the capital to fund a bid incorporating a cash premium. It has debt of $16.3bn and has already raised £4.1bn in a rights issue to help pay off the debt. If Davis opts to offer Anglo shareholders a premium in shares – which would mean diluting Xstrata's stake in the combined entity to less than 50% – he would not be in a position to run it.
It is not the first time that Anglo and Xstrata have considered combining. In late 2007 Davis courted Anglo as a potential buyer but a deal never materialised.