Anglo rejects Xstrata merger of equals plan

By Eric Onstad and Raji Menon

LONDON (Reuters) - Anglo American rejected rival mining group Xstrata's "merger of equals" proposal on Monday, knocking a no-premium marriage and a combination with what it regards as Xstrata's inferior mines.

The snub came a day after Xstrata unveiled its plan and after top Anglo shareholders pressed for a big premium to create a giant to compete in a consolidating mining sector.

"We are disappointed by Anglo American's rapid rejection of our proposal for an all-share merger of equals," a spokesman for Xstrata said following the Anglo rejection.

"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," he said in a statement.

Anglo had said in a statement "a combination with Xstrata would profoundly impact the nature of the group's portfolio by significantly diluting Anglo American's unique exposure to the structurally attractive platinum, iron ore and diamond markets.

"Irrespective of this lack of strategic merit, the terms proposed by Xstrata were totally unacceptable."

That echoed what a source close to the situation told Reuters last week, that Anglo was likely to brush aside any fresh attempt at a tie-up by Anglo-Swiss Xstrata, which has long had Anglo in its sights.

Xstrata came up against another obstacle to its proposal on Monday when South Africa said it feared job losses at Anglo mines if a merger went ahead.