Sterlite Set for Trial to Defend Lawsuit Over Retreat From Asarco Purchase

A unit of Vedanta Resources Plc (VED) , the mining company controlled by billionaire Anil Agarwal, is seeking to defeat a lawsuit over its failure in 2008 to complete the $2.6 billion purchase of copper-mining company Asarco LLC.

Sterlite Industries ( India ) Ltd., the Vedanta unit, walked away from the deal to buy Asarco out of bankruptcy, blaming the financial crisis and a plunge in copper prices. Almost three years later, Asarco’s lawsuit, filed against Sterlite in U.S. Bankruptcy Court Corpus Christi, Texas , is going to trial today.

The lawsuit pits London-based Vedanta against Grupo Mexico SAB, a Mexican mining company and Asarco’s parent. The two companies fought for control of Asarco in 2009 after Sterlite made a new deal to acquire the Tucson, Arizona-based company. Grupo Mexico ultimately defeated Vedanta and kept Asarco with a $2.5 billion bankruptcy plan.

Sterlite, based in India, says Asarco is seeking an “impermissible windfall” after collecting $2.7 billion from Grupo Mexico that followed a bidding war over the company, according to a court filing. Asarco used the money from Grupo Mexico to pay creditors and exit bankruptcy.

Asarco could collect more than $2.2 billion if its view of damages in the case prevails, Sterlite said in court papers. That would mean Grupo Mexico acquired Asarco “virtually for free” because it would recover most of the money it paid to keep control of Asarco.

“This brazen grab for a double-recovery is all the more offensive by reason of the fact that it is being made for the indirect benefit” of Grupo Mexico, which opposed the Sterlite offer, the company said.

William Roll, an attorney for Sterlite, declined comment before the trial. Bryan Dumesnil, an Asarco attorney, couldn’t be reached for comment.

Asarco filed for bankruptcy in 2005 amid a labor strike while it was weighed down by environmental liabilities and asbestos personal-injury claims. It decided to sell its assets and met with bidders in May 2008. It selected Sterlite’s $2.6 billion offer as the winning bid.

In October 2008, Sterlite told Asarco that it couldn’t do the deal. Douglas Bartner, an attorney for the company, told U.S. Bankruptcy Judge Richard Schmidt in Corpus Christi that completing the sale would leave the company in an “unacceptably vulnerable financial position.”

He blamed the “complete collapse” of copper prices and the onset of the financial crisis following the bankruptcy of Lehman Brothers Holdings Inc. in September.

Bankruptcy News & Analysis: Arizona Bankruptcy Court Denies ...

On June 1, 2011, Judge Eileen Hollowell entered an opinion and an order denying confirmation of the third amended plan of reorganization proposed by Saguaro Ranch Development Corporation and four affiliated companies.  This marks the second time this year that Judge Hollowell has denied confirmation of a plan of reorganization proposed by Saguaro Ranch - she denied confirmation of its second amended plan in February.  The companies own over 1,000 acres of land located in the Tortolita Mountains near Tucson, Arizona.  They planned to "create a master planned luxury community with maximal open space and minimal impact on the environment" by developing and selling 180 four to five acre lots for custom homes.  The community was also planned to include amenities such as restaurants, a spa, tennis courts, and horse stables. The debtors were not able to reach a settlement to gain the support of their pre-petition secured lenders for the proposed third amended plan.  The lenders, Kennedy Funding, Inc. and Anglo-American Financial, LLC, lent the debtors $50 million in 2005 to develop the project.  After the court's denial of confirmation of the second amended plan, the court granted the lenders relief from the automatic stay.  The debtors appealed that order, but there was no stay of the order pending appeal.  A trustee sale was set for later this week. The court's opinion denying confirmation of the third amended plan of reorganization focuses primarily on the proposed treatment of the lenders' claims, which the debtors asserted were $28 million and the lenders asserted were $40 million.  The plan proposed to pay the lenders' section 1111(b)(2) claim by paying $17.25 million over five years with six percent interest.  The debtors asserted that the lenders' claims would be paid by the end of the seventh year after effectiveness of the plan, with the payments to the lenders being funded primarily by the sale of 131 home lots.  The plan was also to be funded by a $3 million cash infusion and assignment of a partnership interest asserted to be worth $4 million, both from the family which owns controlling interests in the debtors. Judge Hollowell first addressed the issue of feasibility.  In determining that the plan was not feasible, the court determined that the appropriate standard was whether the debtors had established that the plan had "a reasonable probability of success.

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