India’s Sterlite to acquire US copper giant for $1.7 bn

Unfazed by the global economic slowdown and downturn in commodity prices,Sterlite Industries Limited,a subsidiary of Vedanta Resources plc...

Written by ENS Economic Bureau | Mumbai | Published:March 8, 2009 12:07 am

Unfazed by the global economic slowdown and downturn in commodity prices,Sterlite Industries (India) Limited,a subsidiary of Vedanta Resources plc,the London-based FTSE 100 metal and mining group,has proposed to acquire bankrupt US-based Asarco LLC in a revised deal worth $1.7 billion (around Rs 8,500 crore). The new deal is lower than the $2.6 billion deal that Sterlite offered to buy the Tucson-based mining,smelting and refining company last year.

The Anil Agarwal-owned firm has agreed with Asarco to pay $1.1 billion in cash,and $600 million in senior secured non-interest bearing promissory notes,to be paid over a period of nine years,for substantially all the operating assets of the US firm,which is currently the third largest copper producer in the US.

The purchase consideration comprises a cash payment of $1.1 billion on closing and a senior secured non-interest bearing promissory note for $600 million,payable over a period of nine years. As per the agreement,Sterlite will pay $ 20 million per year from the end of second year for a period of seven years and a terminal payment of $ 460 million at the end of the ninth year,totaling to $600 million.

In the event that the annual average of daily copper prices in a particular year increases beyond $6,000 per tonne,the annual payment in that year will be proportionately increased subject to a maximum of $66.67 million and the terminal payment in the ninth year will be correspondingly reduced,keeping the total payment at $600 million. “The principal amount of the note will be adjusted for any variations in working capital on closing. The obligations under the note are secured against the assets being acquired and are without any recourse to Sterlite,” it said.

The agreement is subject to the approval of the US Bankruptcy Court for the Southern District of Texas,Corpus Christi Division.

Asarco,formerly known as American Smelting and Refining Company,is a 110 year old company. It sold approximately 237,000 tonnes of refined copper in 2008.

“The asset acquisition is on a cash free and debt free basis. Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations. The consideration being paid is towards the gross fixed assets and working capital of Asarco,” Sterlite said.

“We are happy that we have reached agreement with Asarco on these new terms,” said Anil Agarwal,chairman,Sterlite. “This acquisition is in line with our strategy of leveraging our existing skills to become a diversified global copper producer and creating long term value for shareholders.”

The deal

• Sterlite to pay $1.1 bn in cash and $600 mn in senior secured non-interest bearing promissory notes

• $600 mn note payable over nine years

• In 2008,Asarco had total revenues of $1.9 bn and profit before tax of $393 mn

• If copper prices increase beyond $6,000 per tonne,Sterlite to pay more that year

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