By Debarati Roy and Steven Church
March 7 (Bloomberg) -- Sterlite Industries (India) Ltd., India’s biggest copper producer, agreed to buy Asarco LLC, a bankrupt copper miner, for $1.1 billion in cash and a promissory note worth $600 million for its first purchase in North America.
That is less than the original $2.6 billion offer, which Sterlite withdrew last year, saying that price was too high amid a decline in the price of copper.
Asarco, based in Tuscon, Arizona, filed for bankruptcy in 2005 and today faces $7.9 billion in claims. The company’s main creditors are government agencies seeking payment for environmental cleanup and individuals who say they were damaged by asbestos-based products of an Asarco unit.
“We are happy that we have reached an agreement with Asarco on these new terms,” Anil Agarwal, Sterlite’s chairman said in an e-mailed statement in Mumbai. “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.”
Under the proposed sale, Asarco can continue to search for a higher bid until the deal is approved by a bankruptcy court judge in Corpus Christi, Texas. That approval should happen by April 15, Asarco said in a statement.
After the approval, the company would still be able to accept any superior offer that came to it, Asarco said.
“It is satisfying to see months of negotiations finally bear fruit,” Asarco Chief Executive Officer Joseph F. Lapinsky said in a statement.
Boom’s Ending
Asarco’s mines hold about 5 million tons of reserves. The 110-year-old company produced 235,000 tons of refined copper in 2007.
The end of the six-year commodity boom, which helped metal companies deliver record profits, has slashed mine values. BHP Billiton Ltd., the world’s largest mining company, scrapped an offer for rival Rio Tinto Group in November because of the credit-market turmoil.
Copper prices have fallen by more than half from their record in April to $3,720 a metric ton in London. The metal will average $3,411 a ton this year, Standard Chartered Plc said in a Feb. 6 report.
Sterlite said in a statement that payments made on the $600 million note could increase if the price of copper exceeds $6,000 a ton. The company said it would pay the note over nine years.
‘Good Deal’
“Under the current scenario this is a good deal,” Rakesh Arora, an analyst at Macquarie Group Ltd. in Mumbai said in a phone interview. “This will help Sterlite reduce costs and raise production.”
Sterlite’s American depositary receipts declined 0.4 percent to $4.71 in New York Stock Exchange composite trading before the announcement. The company’s shares in India rose 1.9 percent to 250.2 rupees yesterday, while shares of London-based parent Vedanta Resources Plc rose 7 pence to 530 pence.
Sterlite’s original offer was the centerpiece of the plan by Asarco’s managers to reorganize, pay creditors most of what they are owed and allow the company to leave court supervision intact after four years in bankruptcy.
Asarco’s parent, Grupo Mexico SAB, would benefit from the sale “as long as the company is bought in full, and all liabilities are canceled in full,” Rodrigo Heredia, an analyst with Ixe Casa de Bolsa SA in Mexico City said last month. A sale may end Grupo Mexico’s exposure to any asbestos lawsuits against Asarco, Heredia said.
Bankruptcy Filing
Grupo Mexico put Asarco into bankruptcy in 2005 and lost control of the unit when a judge appointed an independent board. Since then, Grupo Mexico has feuded with Asarco managers and tried unsuccessfully to persuade U.S. Bankruptcy Judge Richard Schmidt to give back control of Asarco.
Sterlite, Asarco and a unit of Grupo Mexico were ordered into mediation last year by the judge overseeing the bankruptcy case. Before copper prices plunged last year, Grupo Mexico said it was willing to pay $2.7 billion to ensure that Asarco’s creditors would be paid in full.
In January, Grupo Mexico said it was no longer willing to pay creditors in full to win back control of Asarco. The company’s attorney, Jorge Lazalde, said at the time that Asarco’s creditors should expect only “cents on the dollar” for their claims because Asarco isn’t worth any more than $200 million under current conditions.
Asarco’s biggest debts are tied to the clean-up of environmental damage and to paying victims of asbestos-based products. Asbestos fibers, which were used to make insulation, can lodge deep in the lungs and cause a variety of respiratory ailments.
Asbestos Exposure
Environmental and asbestos creditors supported the original Sterlite plan because it included a settlement that would have paid them at least $2.1 billion. Those creditors include government agencies trying to clean up pollution left by Asarco’s mining and individuals who claim they were harmed by an Asarco affiliate’s asbestos products. Those two groups claim they are owed $5.2 billion.
“Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations,” the company said. “The consideration being paid is toward the gross fixed assets and working capital of Asarco.”
The case is re Asarco LLC, 05-21207, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi).
To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Debarati Roy in Mumbai at droy5@bloomberg.net.
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