Big blow for Sterlite in Asarco bid

In a big blow to Anil Agarwal-controlled Sterlite Industries in its one-and-a half year battle to acquire copper miner Asarco, a bankruptcy court in the US has backed the rival bid of Grupo Mexico.

Though the verdict of the bankruptcy court needs final approval from the district court, something that Sterlite is banking on, legal experts said that step was just a formality and nothing more.

In its ruling filed late Monday, Judge Richard S Schmidt of the bankruptcy court at Corpus Christi in Texas recommended the district court judge to confirm the Grupo Mexico's plan and reject Asarco's own plan, which is sponsored by the Vedanta group company. The judge's recommendation has been referred to US District Court Judge Andrew Hanen at Brownsville in Texas for final approval.

In the US, bankruptcy cases involving companies with large asbestos liabilities, like Asarco's, are sent to a higher court judge for a final ruling. After the verdict came out, the Sterlite stock slipped 2.88 per cent on Tuesday and closed at Rs 655.85, while the Sensex dropped 0.74 per cent.

Judge Schmidt said he believed that both the plans were confirmable, but that the Grupo Mexico-backed plan was "superior." Grupo Mexico's plan, he said, was "funded with sufficient cash to pay creditors in full at confirmation." Asarco's Sterlite-backed plan, however, relies in part on the proceeds of a legal judgment against Grupo Mexico that's under appeal.

Grupo Mexico's offer consists of $2.2 billion in cash plus a $280 million promissory note to the creditors. Vedanta offered $2.1 billion in cash and a put option for Asarco's asbestos creditors to sell their right in a trust set up to compensate them. The option is valued at $137 million.

A top Vedanta executive said the company had still some hope in the battle for Asarco, since the recommendations of the bankruptcy court will be heard in the district court. "The bankruptcy court was favouring the former parent of Asarco, mainly for clearing liabilities, which accumulated because of their fault. We lost in the court, not because of our lower offer value but because of the preference for the estranged parent," he added.

Asarco, which sought bankruptcy protection four years ago, has worked hard to defeat the Grupo Mexico plan. The Mexican company owns Asarco, but lost control early in its Chapter 11 case. Most of Asarco's major creditor groups, and its biggest labour union supported the Sterlite-backed plan, in addition to support from Arizona's Attorney General.

The takeover battle began after Sterlite emerged as the lead bidder for acquiring Asarco on May 31, 2008. The estranged parent, Grupo, then came up with a $4.1 billion revival package, rivaling Sterlite. The Indian copper company later withdrew from the original offer during the downturn, citing a decline in copper prices, when Grupo had withdrawn from the takeover bid.

Grupo, controlled by Mexico's third-richest man German Larrea, re-entered the fray when copper prices moved up six months ago. A week back, Sterlite increased its offer for Asarco's assets by about $500 million to $2.1 billion, citing an increase in copper prices. The revised offer was to match Grupo Mexico's $2.2 billion offer. Later, Grupo had offered to extend the collective bargaining agreement of workers at Asarco for two years.

Asarco, which owns three copper mines in Arizona, is a 110-year-old firm and had filed for bankruptcy protection in 2005 after being sued for $1.6 billion over environmental issues.