Posted by BrazilMax:It should be a chance to jump at. The attempt by Vale, the Brazilian mining giant, to buy Xstrata, its Anglo-Swiss rival, would create the world's biggest mining company. It would also be a giant step in Vale's strategy to become a fully diversified global mining group at a time when demand for industrial commodities, above all from China, is buoyant.
Yet the Chinese themselves may derail it. Following the dawn raid by Chinalco and Alcoa on Rio Tinto that may scotch a takeover bid from BHP Billiton, rumours were circulating at the weekend that Chinalco's backers at the China Development Bank may be preparing to take a stake in Glencore, Xstrata's biggest shareholder. This could easily scupper the Vale deal.
If that happens, it may be a result of dithering by the Brazilian government. People close to the deal say Vale and Xstrata are ready to shake hands (although others say that agreement on price may be some days off). The final hurdle, they say, is to convince the Brazilian government, represented on Vale's board through Previ, the pension fund of Banco do Brasil, and the national development bank, the BNDES. Senior ministers are withholding their approval for a number of reasons. They fear the deal, which would leave Xstrata as Vale's second biggest shareholder, could be the first step to a foreign takeover. And they worry that it would lead Vale to invest overseas instead of putting its money into projects at home, such as partnerships in new steel mills, that would add value to its iron ore in Brazil instead of elsewhere.
Those concerns are misplaced. Vale's current management has produced phenomenal growth at the company since it took over in 2001, four years after privatisation in 1997. The government has golden shares that it can use to stop Vale being sold or transferring its headquarters overseas. Beyond that, it should stifle its old-style left-leaning instincts and let Vale's managers get on with their jobs.