Anglo American rejects Xstrata merger proposal

Mining company Anglo American PLC roundly rejected a merger proposal from its Anglo-Swiss rival Xstrata PLC Monday, saying it made little strategic sense and that the terms were unacceptable.

Anglo American's board said a tie-up with its competitor would be a big blunder because the move would dilute the company's exposure to platinum and diamond markets, while increasing its exposure to nickel and zinc _ base-metals whose prices have been hit hard by the global economic slowdown.

"Irrespective of this lack of strategic merit, the terms proposed by Xstrata were completely unacceptable," the board said in a statement.

Xstrata, which last year failed in a bid to take over another rival, Lonmin PLC, said it was disappointed.

"We are also surprised that the Anglo American Board has not seen fit to engage with Xstrata to discuss our proposal," it said in a statement.

The merger would have created a group worth $68 billion based on Friday's closing share prices, ranking the combined company behind BHP Billiton and Rio Tinto.

Mining companies have been hit by a slump in demand in recent months, leading Xstrata to make last year's hostile 5 billion pound ($8.9 billion) takeover approach for Lonmin.

After fighting off the bid, Lonmin announced plans to suspend some of its mining operations and reduce its work force to adapt to a drop in demand for platinum caused by a downturn in sales of jewelry and cars.

Anglo owns South Africa's Anglo Platinum, the world's largest platinum producer. Xstrata is the world's largest exporter of coal for power stations.

Anglo American shares were up 4.6 percent at 1,698 pence ($27.75), while Xstrata's stock dropped 6.7 percent to 635.10 pence on the London Stock Exchange, which closed before the latest developments.