UPDATE 1-India's Sterlite raises offer price for Asarco

Sat Sep 12, 2009 12:34am IST

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* Sterlite raises Asarco offer to $2.565 billion

* Judge's ruling on sale expected by October 31

* Sterlite bid now seen more competitive vs Grupo Mexico (Adds details from filings, background professor quote)

MUMBAI, Sept 11 (Reuters) - Indian metals maker Sterlite Industries Ltd STRL.BO said on Friday it raised its offer price for bankrupt U.S. copper miner Asarco to $2.565 billion.

Sterlite, a unit of India-focused mining company Vedanta Resources (VED.L), has been facing off with Mexican miner Grupo Mexico (GMEXICOB.MX) for the assets of Asarco, which has been under bankruptcy protection since 2005.

"After extensive discussions and review, in order to provide full cash payment to asbestos creditors ... Sterlite increased its offer from $2.135 billion to $2.565 billion cash," the company said in a statement. The increase covers additional claims and would ensure surplus cash for smooth operation of Asarco, it said.

Sterlite's new offer "might change the game" in the long-running Asarco battle, said Gregory Duhl, a law professor at William Mitchell College of Law in Minnesota who specializes in bankruptcy.

Asarco, which owns three copper mines in Arizona, was acquired by Grupo Mexico in 1999, but Grupo lacks control of Asarco's board as a result of the bankruptcy.

Last month a U.S. bankruptcy court recommended that Grupo Mexico be allowed to take control of Asarco as it was more likely to pay Asarco's creditors in full. [ID:nN31457007]

On Thursday, Asarco and Sterlite filed objections to the judge's recommendations. [ID:nWNAB8508]

In the court papers, Sterlite said the raised bid is "at least an equal proposal" to Grupo Mexico's plan and perhaps superior as it has more support from Asarco's creditors. However, Grupo Mexico owns 100 percent of Asarco's equity, which could make its bid difficult to top.

"On the one hand Grupo has some equity and the court may decide it wants to retain that equity," Duhl said. "On the other hand, ultimately the court could weigh which plan is going to allow the company to operate better."

Sterlite's plan is supported by Asarco's union. Asarco's initial bankruptcy filing in 2005 followed a long strike by its union over wages and benefits while it was under Grupo Mexico's control.

Shares of Sterlite, which has a market value of $11.2 billion, closed down nearly 3 percent at 745.90 rupees.

The new offer is ironically close to a $2.6 billion bid Sterlite made for Asarco in May 2008. Sterlite backed out of that deal last October, saying it needed a price cut after the copper markets dropped, sparking a long renegotiation between it and Grupo Mexico.

U.S. District Judge Andrew Hanen, in Brownsville, Texas, is expected to rule on the competing Sterlite and Grupo Mexico plans by Oct. 31. Duhl said the district court could also send the case back to bankruptcy court to consider the new offer.

A Grupo Mexico spokesman declined to immediately comment on the new Sterlite bid.

Grupo has been desperate to regain control of the copper miner after it was ordered to pay Asarco a $7.5 billion judgment in April. In that case, Judge Hanen found that Grupo made a "fraudulent transfer" of Asarco's stake in Peruvian miner Southern Copper Corp PCU.N in 2003. Grupo is appealing the decision, but if it regains control of Asarco the judgment would also disappear. If Sterlite were to take over Asarco the judgment would stand.

The cases are In re: Asarco LLC, U.S. Bankruptcy Court, Southern District of Texas, No. 05-21207 and In re: Asarco LLC, U.S. District Court, Southern District of Texas, No. 09-00177. (Reporting by Janaki Krishnan, additional reporting by Emily Chasan and Phil Wahba in New York and Ajay Kamalakaran in Bangalore; Editing by Ranjit Gangadharan and Steve Orlofsky)