Grupo Mexico puts pressure on Asarco

Grupo Mexico has upped its cash bid for Asarco (AR-N) to US$29.50 per share in an effort to derail a signed merger deal between Asarco and Phelps Dodge (PD-N).

Asarco has not responded to the improved offer, other than to say it will be evaluated by its board. Phelps Dodge, meanwhile, has indicated it will stand firm with its proposal to acquire Asarco.

Grupo raised its bid US$3.50 per share from US$26, which values Asarco at US$1.2 billion, or US$2.24 billion with assumption of debt.

The Phelps Dodge offer values Asarco at US$28.21 per share on a fully pro-rated basis. Asarco shareholders have the right to receive all cash or all stock. Under the all-cash option, shareholders would receive US$29.50, equal to the Grupo Mexico offer. With the all-stock option, they would receive fractionally more than half a share for every share of Asarco, tax-free.

Prior to the revised bid from Grupo Mexico, Asarco had accepted Phelps Dodge’s offer, agreeing to a US$30-million breakup fee should the deal fall through.

However, Grupo Mexico’s improved offer potentially jeopardizes the copper giant’s realization of a 3-way merger with Asarco and Cyprus Amax Minerals (CYM-N). Only a week ago, Cyprus agreed to merge with Phelps Dodge after an original 2-way merger with Asarco fell apart.

If Phelps Dodge succeeds in acquiring Asarco, it would become the largest copper producer in the world, with production projected at 3.8 billion lbs. The amalgamation would result in cost savings of more than US$200 million annually and consolidate much of the copper operations in the southwest into one company.

If Grupo Mexico is successful, Asarco’s mines in southern Arizona would be integrated into those held by Mexico’s largest copper producer. The company claims it could achieve savings of US$100 million per year. The deal would also give Grupo Mexico a foothold in the South American copper business, with a 54% interest in Southern Peru Copper (PCU-N)

Grupo Mexico, which already owns 9.6% of Asarco, operates 13 mines and smelting complexes across Mexico, including the Cananea and Caridad porphyry copper mines in Sonora state. The company also ranks as a significant producer of zinc and silver, and operates the largest railroad system in Mexico. Its offer for Asarco will remain open through to Oct. 25.

Asarco owns 8.6% of Grupo Mexico, valued at US$79 million.