Johannesburg, Oct 16, 2009 (Business Day/All Africa Global Media via COMTEX) -- I WASN'T holding my breath while waiting for Xstrata's response on the UK Takeover Panel's October 20 deadline relating to a possible merger with Anglo American. I expected, as was reported yesterday, that Xstrata would walk away. I agree, however, with Xstrata CEO Mick Davis, that there is "a compelling strategic rationale for a merger of the two companies".

This may seem something of a turnaround relative to comments I've made in earlier columns. However, before the panel's deadline was imposed, I had an amicable telephone chat with one of Xstrata's senior executives.

The gist of the conversation, and some media reports, gave me an uneasy feeling on Anglo's reaction to the overture from Davis. I think this was a case of overkill on Anglo's side. I'm not even sure that the overture should have been required to be reported. My feeling is that Davis's collegial conversation with Anglo CEO Cynthia Carroll was simply exploratory. The exploration would certainly have been based on some figure work, but that's about all.

This figure work could well have been fuel enough for Anglo to feel the talk was in the nature of a bid. Appropriately, Anglo felt this required to be reported. The consequence of its having been disclosed then required Xstrata to convert a collegial idea into a more formal proposal bid, detailing a share swap on the basis of a snapshot of the then respective share prices of the two companies.

This was hardly the basis for a concrete bid, but was good fodder for analysts, commentators, Xstrata shareholders and Anglo shareholders -- including the Private Investor portfolio, and especially, disaffected Anglo shareholders still lamenting the loss of a passed final dividend.

Anglo felt compelled to invest in a defence against a potential concrete bid. Xstrata felt compelled to canvass Anglo shareholders. Retired director Graham Boustred enjoyed another 15 minutes of fame.

Suppose, however, that Davis had, in the course of the collegial talk, said something like this to Carroll: "You're not interested. But my door is still open to discuss the idea."

Would it have been necessary then to have reported the chat?

There are possibly other suitors for an alliance with Anglo. There have been media comments on potential significant stakes in Anglo. The difference is that these conjectural investments don't envisage a merger, and they may not necessarily require disclosure -- at least not until they become concrete and are regarded as having a significant financial implication for Anglo.

In a much earlier incarnation in my working lifetime I was a corporate and marketing consultant. One of my clients was a listed company that had been built by acquiring other companies allied to its core manufacturing business. It was always a target for media conjecture on the potential takeover of a company in its own sector. My main task was to try to curb this conjecture, or more crudely, to gag the press. The reason was, however, not to try to curb press freedom, but to save management resources spent discussing embryonic ideas in the public forum.

The gag worked effectively. My experience suggests that the subject matter in the collegial Xstrata-Anglo talk could and should have been gagged -- well, at least until there was a concrete bid on the table.

<<Business Day. Distributed AllAfrica Global Media (allAfrica.com). -- 10/19/2009>>