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The move on Anglo American by Xstrata to create a £40 billion global mining giant to rival BHP Billiton and Rio Tinto appeared doomed today after the South African government said it would block it.
Susan Shabangu, the mining minister in South Africa, Anglo's heartland, said a potential merger is "unacceptable".
She told reporters in Cape Town: "That is unhealthy. That is uncompetitive and in terms of the global standards and principles, it is just unacceptable. Definitely monopolies cannot be promoted in South Africa."
The intervention of the South African government came after Anglo yesterday dismissed Xstrata's overtures for a nil-premium merger of the two mining giants.
Shares in Anglo today rose 21½p to 1719½p as Xstrata indicated it could go over the head of Anglo's board and appeal direct to its shareholders in an attempt to resurrect a deal.
Anglo shares were also said to be moving on talk that Vale of Brazil or Chinalco of China could enter a bidding war.
Investec, the South Africa-based investment house, was sharply critical of the refusal of under-pressure chief executive Cynthia Carroll and chairman Sir Mark Moody-Stuart to talk to Xstrata.
Investec analyst Kieran Daly said: "We think that many Anglo shareholders would have wanted Anglo to more explicitly explore a deal with Xstrata rather than reject Xstrata's proposal out of hand."
But few in the City believe Xstrata chief executive Mick Davis will go hostile.
One Anglo backer told the Evening Standard: "The louder or more aggressive Xstrata attempts to make its case for a nil-premium merger, the more its looks like an attempt to do a takeover on the cheap.
"The City does not do nil-premium takeovers, and how do you go hostile in a nil-premium merger? Xstrata finds itself in Catch 22."
After a two-hour meeting yesterday in which the Anglo board dismissed the Xstrata proposal, Xstrata put out a waspish statement indicating if the Anglo board will not talk, maybe its leading shareholders might.
"We are disappointed by Anglo American's rapid rejection of our proposal for an all-share merger of equals," said Xstrata.
"We are also surprised the Anglo American board has not seen fit to engage with Xstrata to discuss our proposal in view of the substantial value for both companies' shareholders that would arise uniquely from a merger of the two companies."
Anglo says an Xstrata merger "would significantly dilute Anglo American's unique exposure to the structurally attractive platinum, iron ore and diamond markets while increasing exposure to nickel and zinc".
Advisers argue Anglo shareholders would want a premium for their shares before considering any Xstrata advance.
In its statement, Anglo said: "The board has concluded the strategic case for the combination is unattractive for Anglo American shareholders. Irrespective of this lack of strategic merit, the terms proposed by Xstrata were totally unacceptable."
