By Jeff Fick, Dow Jones Newswires
January 29, 2008
RIO DE JANEIRO (Dow Jones)--Citigroup maintained its "Buy" rating on shares of Brazilian mining giant Companhia Vale do Rio Doce (RIO), saying Tuesday that the possible merger of Vale and Anglo-Swiss mining group Xstrata PLC (XTA.LN) appears "almost inevitable."
"Vale is a willing buyer - with board support - and Glencore is a willing seller - with no other suitors in the wings," Citigroup said in a research note.
The deal is estimated at between $80 billion and $90 billion, with key Xstrata shareholder Glencore International AG said to be willing to accept $30 billion worth of Vale preferred shares for its nearly 35% stake in Xstrata.
The much-speculated deal is already closed to priced into Vale's shares, which still represent a good long-term value, Citigroup said.
"We remain adherents of the 'super-cycle,' believing that current U.S. economic weakness is cyclical, but the supply challenges in the metals space are structural," Citigroup said.
Furthermore, the deal could give Vale added resolve to push for a significant increase in 2008 iron ore price contracts, Citigroup said.
"An aggressive +70% settlement now seems more likely," Citigroup said.
Vale's shares outperformed the broader market in midday trade Tuesday, rising 2.5% to 45.10 Brazilian reals ($25.35). The overall market as measured by the Ibovespa stocks index was 1.5% higher at 59,445 points as of 1600 GMT.
Citigroup Calls Vale-Xstrata Deal 'Almost Inevitable'
