Commodities giant set to take over miner Xstrata for $41 bln

LONDON - Reuters

Swiss commodities trader Glencore’s logo is seen in front of its headquarters in Baar, near Zurich. Glencore eyes to buy out Xstrata, in which it already has 34 percent stake. REUTERS photo

Commodities trader Glencore agreed yesterday to buy the remaining 66 percent of miner Xstrata for $41 billion in a record deal to create a powerhouse spanning mining, agriculture and trading.

In what has been billed as a merger of equals, Glencore, the world’s largest diversified commodities trading house, and Xstrata will form a company worth $90 billion to rival other mining heavyweights such as BHP Billiton and Rio Tinto.

The new group, which will have mining assets from New Caledonia to the Democratic Republic of Congo, are expected to use their combined clout to look at other deals, including potentially a takeover of Anglo American, analysts say.

“M&A is a space that you would expect the combined group to be in,” Xstrata chief executive Mick Davis, who will be CEO of the enlarged Glencore, told Reuters.

“We have a combined entity which has much greater flexibility to be opportunistic and capture the right opportunities when they are there.” Glencore will issue 2.8 new shares for each Xstrata share in a deal they said was a “merger of equals”.

The ratio is a 15.2 percent premium to Xstrata shareholders compared with its share price on Feb. 1 before word leaked out about the merger talks, a joint statement said.

Partner’s rejection

Standard Life Investments, the fourth largest investor in Xstrata, said it intended to vote against the deal because it “clearly undervalues” the firm’s assets and future earnings.

Standard Life holds 63.6 million shares in Xstrata. Some Xstrata shareholders had demanded a strong sweetener over the past few days but several analysts still expected them to warm to the deal, even though the premium is well below the typical 20 percent to 30 percent level in the mining sector.
“With Xstrata getting the three top jobs and a small premium we fail to see how Xstrata shareholders have come out poorly here. They gain access to some very fast growing assets and a world class trading platform,” said Liberum analyst Dominic O’Kane in a note.

Xstrata chairman John Bond and Chief Financial Officer Trevor Reid will retain their posts, and Glencore CEO Ivan Glasenberg, a billionaire who owns 15.8 percent of Glencore, will be president and deputy CEO of the new company.

Xstrata shareholders other than Glencore, which already has a 34 percent stake in the mining group, will hold 45 percent of the new company, to be named Glencore Xstrata International.

Competition authorities are expected to have a hard look at the new company, which will have a big sway over key markets like thermal coal, copper, zinc and others.