Xstrata cancels £5bn Lonmin bid

Xstrata share price Lonmin share price

The mining group Xstrata has abandoned its £5bn ($8.9bn) bid for its rival Lonmin because of the credit crisis.

Xstrata said the current uncertainty in the markets meant borrowing the money needed to fund the takeover was not in its best interests.

Lonmin, an Anglo-African platinum miner, had already rejected the deal saying it undervalued the company.

Xstrata had announced its proposed bid for Lonmin in August. It had until 2 October to confirm its bid.

Xstrata has no current intention to make an offer for Lonmin. Mick Davis Xstrata chief executive

The UK's regulator, the takeover panel, had imposed the deadline on Xstrata - after which the firm would have had to hold off for six months before making a fresh approach.

Xstrata would have needed to borrow an estimated £8bn to pay for its purchase of Lonmin and to refinance some of its debts, according to news agency Reuters.

Under the terms of the planned loan Xstrata would have had to refinance a substantial portion of its new debts within 12 months.

Business outlook

In a statement Xstrata said it would not be in its best interests to take on the extra borrowing.

"The current lack of clarity and certainty regarding the future availability of credit introduces significant risks," said Xstrata chief executive Mick Davis.

"As a result, Xstrata has no current intention to make an offer for Lonmin."

Xstrata's share price has been hit hard by the turmoil on financial markets, but said the fundamental business outlook remained positive.

Xstrata, which is one of the world's biggest mining groups, said it was optimistic about prospects for commodity prices, even though prices might remain week in the short term.

Lonmin share price initially surged after Xstrata's approach, briefly trading above Xstrata's £33-per-share tentative offer price, but has gradually fallen back as doubts surfaced about a bid.

Following Xstrata's announcement, its share price is expected to rise, while Lonmin's is expected to slip, traders said.