Bloomberg News

Grupo Mexico Scraps Southern Copper, Asarco Merger Proposal

November 01, 2011

(Updates with closing share prices in fifth paragraph, CFO comment in seventh paragraph.)

Oct. 31 (Bloomberg) -- Grupo Mexico SAB, the nation’s largest mining company, dropped plans to merge its Asarco LLC and Southern Copper Corp. businesses into a single unit within its mining business after some shareholders challenged the plan.

Grupo Mexico withdrew its offer “in light of our recent discussions and other developments,” according to an Oct. 28 letter to Phoenix-based Southern Copper, which didn’t provide further details. Grupo Mexico, the owner of 81 percent of Southern Copper, had offered investors 1.237 shares of its Americas unit for each Southern Copper share in July 2010.

Grupo Mexico, based in Mexico City, had sought the merger to save costs after it regained control of bankrupt Asarco in 2009 and had expected to complete the transaction in the first- half of this year. A month after the merger was proposed Southern Copper was sued by a pension fund, claiming the offer from Grupo Mexico didn´t properly compensate investors.

“We think the decision is lightly negative for Grupo Mexico,” Alexander Hacking, an analyst for New York-based Citigroup, wrote in a note to clients today.

Southern Copper fell 5.5 percent to $30.68 in New York. Grupo Mexico fell 3.2 percent to 37 pesos in Mexico.

Combining the units would had placed all Grupo Mexico’s mining operations, including Southern and Asarco, into one publicly traded company, allowing investors to value that separately from Grupo Mexico’s railroad and oil-drilling units.

Grupo Mexico Chief Financial Officer Daniel Muniz said today the company is studying ways to capitalize on the strengths of its mining units.

‘Strategic Alternatives’

“We are going to continue looking for strategic alternatives that better capitalize on the strength of our two subsidiaries,” he said during Grupo Mexico’s earnings conference call. “We do have a corporate structure that has two great companies with a very world-class asset base.”

As of yesterday, Grupo Mexico’s 80 percent stake in Southern Copper was worth about $20.8 billion, or 5.2 percent less than the Mexico City-based company’s own market value of $21.9.

A special board committee was created last year to evaluate the offer to exchange the shares of Americas Mining for Southern Copper share, Southern Copper said in an August 2010 filing to the U.S. Securities and Exchange Commission.

Under Grupo Mexico’s merger proposal, Southern Copper’s minority shareholders would own 16.6 percent of Americas Mining, which would own 100 percent of Southern Copper.

--With assistance from Andrew Cinko in New York and Jonathan Roeder and Crayton Harrison in Mexico City. Editor: Dale Crofts, Robin Saponar

To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net; Carlos M. Rodriguez in Mexico City at carlosmr@bloomberg.net;

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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