Vale share slide another hurdle for Xstrata deal

By Eric Onstad

LONDON (Reuters) - A drop in the share price of Brazil's Vale (VALE5.SA) RIO.N relative to bid target Xstrata (XTA.L) has thrown another obstacle in the way of any deal between the two mining groups.

An acquisition of Xstrata by Vale could be worth $90 billion and would mark one of the world's biggest takeovers.

Since the close of trading on Feb 28, Vale's New York share price has slid nearly 14 percent versus an decline of around 3 percent in Xstrata's shares. Vale closed on Monday in New York down 4.4 percent at $31.67 after Xstrata closed in London off 2.6 percent at 38.34 pounds.

The share movement has eroded the value of Vale's tentative offer, complicating any further discussions, a source close to the talks said.

"The mood among the parties is getting darker rather than brighter. The share price movements in the last 10 days make a transaction more difficult," the source, who declined to be named, said.

Another source close to the negotiations in Brazil declined to give details, but said: "The negotiations continue. They are very complicated, but we keep negotiating."

Vale, the world's largest iron ore producer, said on Feb 29 that it had reached its limits in takeover talks with Xstrata and its biggest shareholder Glencore.

At that stage, Vale's Chief Executive Roger Agnelli said the main obstacle to sealing a deal was a dispute over marketing rights in a combined firm with Swiss commodities trader Glencore, which markets much of Xstrata's output.