[miningmx.com] — GLENCORE International has until March 1 to make a
move for global miner Xstrata in a possible deal that would create a merged company
valued around £50bn.
Xstrata confirmed on Thursday that it has received an approach from Glencore for a
merger of equals. Xstrata’s market value at the close of trading on Wednesday was
£32bn, compared to the £30bn of Glencore. Glencore already holds 34% of Xstrata.
“Glencore is now required, by no later than 17:00 on March 1 2012, to either
announce a firm intention to make an offer for the company . or announce that it
does not intend to make an offer,’ read an Xstrata statement. The deadline is in
accordance with UK takeover requirements.
Xstrata released the statement following the publication of a Bloomberg article
which, without naming sources, indicated a deal may be announced as early as this
week.
Numerous analysts have pointed to the many synergies on offer for such a move –
Glencore being the dominant trader and marketing agent and Xtrata owning well-
managed assets – with both parties’ skills and expertise complementing the other.
Peter Davey, Head of Metals and Mining Research at Standard Bank, however said
there was still “a long road to travel” before a merger would become a reality.
“I cannot see how many Xstrata shareholders would accept a merger of equals,” he
said. “If it does happen, I would see a lot of Xstrata executives [and expertise]
moving on.”
This view was echoed in part by Andy Davidson of Numis Securities, who said the
issue of synergies was “over-played”.
“Any merger would greatly strengthen Glencore’s presence in commodity markets –
particularly thermal coal, copper and feroalloys – but also raise conflict of interest
concerns due to the size of the combined entity and likely influence on prices,”
Davidson said in a note to clients.
“The sticking point has always been valuation, particularly of Glencore’s semi-opaque
trading business.
“Xstrata has stated in the past that it has ‘outgrown’ its big brother,’ suggesting
that it will require a decent premium for surrendering its independence.”
Glencore’s IPO in 2011 has often been viewed as a first step towards a possible
merger with Xstrata, with which it shares close historic ties.
“We are a company that has increasingly invested in fixed assets and has ambitions
to grow further,” Glencore CEO Ivan Glasenberg told Miningmx in June, explaining the
rationale for the IPO.
Reuters reported Xstrata was taking advice from four banks. CEO Mick Davis has
called on Nomura and Goldman Sachs, alongside JP Morgan and Deutsche.
Glencore CEO Ivan Glasenberg has opted for advisers Citigroup and Morgan Stanley,
which were also lead banks for Glencore’s $10bn listing last May.
