INDIA BUSINESS WORLD - JUNE 1st - JUNE 30th - 2008
STERLITE ACQUIRES ASARCO FOR RECORD $2.6 BILLION
Sterlite Industries (India) has announced the acquisition of Asarco Llc, a Tucson-based copper mining, smelting and refining company, for $2.6 billion in cash. This is the largest overseas purchase by an Indian company this year, overtaking Tata Motors’ acquisition of the marquee brands, Jaguar and Land Rover, from Ford for $2.3 billion. Post the deal, Sterlite will become the world’s third largest copper miner with a combined capacity of 650,000 tonnes a year.
Sterlite Industries, a part of the Vedanta group, signed a definitive agreement with Asarco to this effect. The transaction expected to be funded by internal accruals and borrowing, is subject to US Bankruptcy Court approval. Sterlite expects to conclude the formalities by September-October.
“We are delighted to have reached an agreement on this important acquisition, which is a significant milestone for our group,“ said Anil Agarwal, chairman of Sterlite Industries, which is now the world’s fifth largest copper miner with 400,000 tonnes capacity a year. Asarco is a logical and strategic fit with Sterlite’s existing copper business and is expected to create significant long-term value for all stakeholders through leveraging its proven operational and project skills to evolve and optimise Asarco’s mines and plants; access to attractive mining assets with long life; geographic diversification in the North American market; and stable operating and financial platform for Asarco, said Mr Agarwal.
He did not mention the exact amount of money it needs to borrow to fund the deal. He said Sterlite is a near zero debt company and therefore funding will be no issue. Sterlite has reserves of nearly $4.5 billion, he said over the phone from New York.
Sterlite has agreed to pay four times of EVA/EBITDA for the transaction which is amongst the lowest in the global mining space. Last year, Teckcominco bought Aur for a multiple of 6.6 times while Nordduetsche Affineire paid a multiple of 6.9 times for acquiring Cumiero. Also, Sterlite has a track record of turning companies around. The list includes Hindustan Zinc, Balco, Malco and assets in Zambia. The only exception is India Foils which it failed to put back on track and therefore sold it. Mr Agarwal said Asarco is in good financial position with an EBITDA of $650 million in 2007.
Asarco, formerly known as American Smelting and Refining Company, was put on the block after its creditors and trade unions filed for bankruptcy nearly a year ago. Lehman Brothers acted as financial adviser and Baker Botts acted as legal adviser to Asarco in this transaction. Sterlite, which emerged as the highest bidder among many suitors, will only acquire the assets and absorb the “operating liabilities” and not the legacy liabilities for asbestos and environmental claims. Asarco’s operating liabilities are marginal, Sterlite officials said.
All bids were submitted in late April and the selection of the highest best bid occurred on May 23. Then the Sterlite team was called for further discussions. The Sterlite team was represented by Anil Agarwal, CFO Tarun Jain and representatives of ABN AMRO Corporate Finance, its financial adviser, and Shearman & Sterling, its legal adviser. The selection process followed a procedure supported by Asarco’s creditors and approved by the US Bankruptcy Court.
Sterlite said the copper production can be expanded, post the conclusion of the deal. The assets to be acquired include three openpit copper mines and a copper smelter in Arizona, US and a copper refinery, rod and cake plant and precious metals plant in Texas, US.
Asarco’s president and CEO Joseph F Lapinsky said: “Reaching this pact with a worldclass mining company is a giant step forward in our quest to successfully emerge from Chapter 11,” he said.
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