Vale drops Merrill as a lead adviser on Xstrata-FT

SINGAPORE, Feb 4 (Reuters) - Brazil's Vale VALES.SA, the world's second-largest mining group, has fired Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) as one of two lead advisers on a potential $90 billion takeover bid for Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) after Merrill decided not to help finance the deal, the Financial Times said on Monday.

The investment bank was told by Vale it would lose its advisory role in the takeover if it did not commit to helping finance the transaction, the newspaper reported, quoting people close to the situation.

It said Merrill Lynch had concluded that the terms of the financing were not economically feasible for either the bank's or Vale's shareholders.

The Brazilian group announced last month it was in talks with Swiss-based miner Xstrata and said it had been in discussions with several banks about the financing.

However, many banks are involved in BHP Billiton's (BHP.AX: Quote, Profile, Research, Stock Buzz) (BLT.L: Quote, Profile, Research, Stock Buzz) hostile bid for Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz)(RIO.L: Quote, Profile, Research, Stock Buzz) and do not have the capacity to finance two large cash deals, the newspaper said.

So far, Vale is believed to have secured financing from HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), Lehman Brothers LEH.N, Banco Santander (SAN.MC: Quote, Profile, Research, Stock Buzz), Calyon, Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) and BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz), the report said.

The Brazilian group has yet to approach Xstrata with a formal offer. The report said Merrill Lynch declined to comment while Vale could not be reached. (Reporting by Valerie Lee; Editing by Alan Raybould)