UPDATE: Anglo American, A Glencore-Xstrata Takeover Target -Executives

The proposed combination of Glencore International PLC (GLEN.LN) and Xstrata PLC (XTA.LN) may create a company with enough financial muscle to go after globally diversified miner Anglo American PLC (AAL.LN), mining industry and financial executives said Wednesday.

Anglo-Swiss miner Xstrata and commodities titan Glencore's planned merger would create a mining and commodities trading giant with a market value of $90 billion that would generate more than $200 billion in annual sales.

Speaking on the sidelines of the Mining Indaba conference here, mining entrepreneur Robert Friedland, the chairman of Ivanhoe Mines Ltd. (IVN.T), told Dow Jones Newswires that Anglo American is definitely a takeover target if this week's announced proposal creates Glencore Xstrata International PLC as the merged behemoth would be called.

"It's blatantly obviously that Anglo is a takeover target," he said.

He wouldn't provide details on why but said: "I would be surprised if they [Glencore-Xstrata) don't eventually" make a move on Anglo American.

Other financiers and senior industry executives in the mining industry have voiced similar views.

"The company that has been left high and dry [as a result of the announced Glencore-Xstrata merger] is Anglo American," said Mark Tyler, head of resource financing at Nedbank. "Someone is going to buy Anglo," he said, noting that Glencore-Xstrata was a very likely candidate given Xstrata's previous attempt to merge with Anglo American.

Tuesday, Anglo American Chief Executive Cynthia Carroll, declined to comment on the Glencore and Xstrata deal but said that any merger and acquisition activity her company pursues would be in-line with its overall objective to only focus on major assets. "We aren't going to deviate from our approach and forgo our objectives for something that isn't tier one," she said.

In 2009 Xstrata approached Anglo American to explore the potential for a merger of equals but Anglo American quickly rejected the offer on grounds that it would dilute Anglo American's attractive exposure to platinum, iron ore and diamond markets while increasing exposure to nickel and zinc.

Xstrata's Chief Executive Mick Davis said at the time that he lamented Anglo American's decision to reject the offer before exploring the potential value that could be generated from such a merger.

"The compelling strategic rationale for a merger of the two companies remains undiminished and has been recognized by shareholders of both companies," Davis noted after retracting Xstrata's offer. He said the merger could have generated over $1 billion in pre-tax annual synergies starting on the third year of deal's closure.

Tyler said that Anglo American shareholders might this time around push the company to strike a deal. Shareholders of Anglo American, now the smallest of the big five diversified mining companies by market value (if Glencore and Xstrata are counted as one company), may feel Anglo American should combine with another company to gain more heft in order to extract more operational efficiency from economies of scale, Tyler said.

Friedland noted that the proposed Glencore-Xstrata merger makes sense, particularly in an industry where companies merge or buy one another in part to lower production costs and reduce overhead costs. "The big fish eat the little fish," he said.

Friedland said the Glencore-Xstrata merger would create a formidable company in the mining industry but could face close regulatory scrutiny as a result. The combination of the two companies would put one-third of the world's sea-born thermal coal market in the hands of one player, he said. "There is no oil company that has that" kind of market share, he noted.

-By Alex MacDonald, Dow Jones Newswires; +44 (0)7776 200 924 alex.macdonald@dowjones.com

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