Xstrata cancels £5bn Lonmin bid

The mining group Xstrata has abandoned its £5bn ($8.9bn) bid for its rival Lonmin because of the credit crisis.

Xstrata said the current uncertainty in the markets meant borrowing the money needed to fund the takeover was not in its best interests.

Lonmin, an Anglo-African platinum miner, had already rejected the deal saying it undervalued the company.

Xstrata had announced its proposed bid for Lonmin in August. It had until 2 October to confirm its bid.

The UK's regulator, the takeover panel, had imposed the deadline on Xstrata - after which the firm would have had to hold off for six months before making a fresh approach.

Xstrata would have needed to borrow an estimated £8bn to pay for its purchase of Lonmin and to refinance some of its debts, according to news agency Reuters.

Under the terms of the planned loan Xstrata would have had to refinance a substantial portion of its new debts within 12 months.

Business outlook

In a statement Xstrata said it would not be in its best interests to take on the extra borrowing.

"The current lack of clarity and certainty regarding the future availability of credit introduces significant risks," said Xstrata chief executive Mick Davis.

"As a result, Xstrata has no current intention to make an offer for Lonmin."

Xstrata's share price has been hit hard by the turmoil on financial markets, but said the fundamental business outlook remained positive.

Xstrata, which is one of the world's biggest mining groups, said it was optimistic about prospects for commodity prices, even though prices might remain week in the short term.

Lonmin share price initially surged after Xstrata's approach, briefly trading above Xstrata's £33-per-share tentative offer price, but has gradually fallen back as doubts surfaced about a bid.

Following Xstrata's announcement, its share price is expected to rise, while Lonmin's is expected to slip, traders said.

US senators to vote on bail-out

If it passes, the House of Representatives could be under pressure to accept some of the changes when it meets on Thursday.

However, some members of Congress are continuing to press for more fundamental changes, for instance for a system of insurance for bad loans, rather than the removal of the loans from the books of financial companies, says the BBC's Americas editor Justin Webb.

Earlier President Bush had warned of "painful and lasting" consequences for the US should Congress fail to agree a rescue plan.

If it passes, the House of Representatives could be under pressure to accept some of the changes when it meets on Thursday.

However, some members of Congress are continuing to press for more fundamental changes, for instance for a system of insurance for bad loans, rather than the removal of the loans from the books of financial companies, says the BBC's Americas editor Justin Webb.

Earlier President Bush had warned of "painful and lasting" consequences for the US should Congress fail to agree a rescue plan.

The Dow Jones index closed up 4.7% on Tuesday, recouping some losses from Monday's rout, after the markets reacted favourably to the president's statement.

Markets in Japan and Australia saw gains as they opened on Wednesday morning, with the Nikkei climbing 1.2%.

Possible momentum

Analysts say the Senate is more likely to pass the bill because senators are not facing the same pressure from voters as members of the House.

All representatives face re-election in November compared with only one-third of senators.

The measure will require 60 of the 100 senators to vote in favour in order to pass.

The BBC's Jonathan Beale, in Washington, says a positive vote in the Senate is likely to give the bill momentum when it goes back to the House.

Presidential candidates John McCain and Barack Obama, who both support Mr Bush's efforts to bail out the economy, say they will return from campaigning to vote in the Senate.

'Not the end'

Mr Bush said at the White House: "We are in an urgent situation and the consequences will grow worse each day if we do not act."

The economy was depending on "decisive action on the part of our government", he added.

He said he wanted to "assure our citizens and citizens around the world that this is not the end of the legislative process".

"Our country is not facing a choice between government action and the smooth functioning of the free market," he said.

"We're facing a choice between action and the real prospect of economic hardship for millions of Americans," he warned.