Xstrata today walked away from making a £56 billion bid for Anglo American but continued to talk up the benefits of merging the two companies.

The mining giant has pulled out of making an offer five days before a "put up or shut up" deadline imposed by the Takeover Panel was due to expire. Under the Takeover Code, the company is now unable to make a bid for six months.

However, Mick Davis, chief executive of Xstrata, reiterated the rationale behind a combination. He said: "... the compelling strategic rationale for a merger of the two companies remains undiminished and has been recognised by shareholders of both companies. As previously announced, a merger would deliver over $1 billion of quantified pre-tax synergies per annum by the third full year following completion, together with superior competitive positioning, scale and diversity.

"Cost savings measures by either company alone, while commendable, simply cannot realise this value, nor deliver the associated strategic benefits."

Mr Davis also said: "It is regrettable that the board of Anglo American immediately rejected our approach, without engaging with Xstrata to investigate the potential to create more value than either company could alone."

Shares in Xstrata rose by 1.75 per cent to £10.49 in early trading today, while Anglo American's stock fell by 1.49 per cent to £22.76.

Xstrata's original approach was made in June this year and proposed a merger-of-equals between the Swiss-based mining company and Anglo American, both valued at around £20 billion at the time. No offer was ever made, however, as Xstrata's approach was immediately rejected.

On October 2, the Takeover Panel imposed a deadline of 5pm on October 20, by which Xstrata would have to make an offer or walk away from the deal.

Mr Davis added: "Our decision not to proceed with an offer before the deadline imposed by the UK Takeover Panel reflects our disciplined approach to growth and our focus on the value proposition for Xstrata's shareholders in a merger. We continue to assess a range of alternative growth options, in full recognition that transactions of this nature often take time and patience to mature."

Mr Davis insisted that he remained confident in Xstrata's "standalone prospects" and said the company is well placed to benefit from a global economic recovery.

Sir John Parker, Anglo American chairman, earlier this month welcomed the Takeover Panel's move to impose an ultimatum for an Xstrata offer, claiming that it was not in the interest of Anglo American shareholders to accept a merger that was "lacking strategic merit".

A spokeswoman for Xstrata denied that problems raising cash contributed to Xstrata's decision to walk away from the deal. The mining industry has suffered from falling demand during the downturn and Xstrata had to abandon a £5 billion bid for Lonmin last year at the height of the credit crunch.

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