SWISS mining and commodities trading powerhouse Glencore is working on a £55bn merger with Xstrata, the London and Geneva-listed metal extraction giant.
Advisers to Glencore are understood to be drawing up plans for the privately-held company to join the public arena through a reverse takeover of Xstrata. Glencore, which already owns 34.4 per cent of its listed counterpart, would sell down its stake in the merged group to below 40 per cent under proposals being studied by the Xstrata board.
Suggestions of a tie-up between the two firms have snowballed since Glencore began planning for an initial public offering last year. At the time of issuing a £1.4bn bond in December, Glencore said it could pursue a flotation in possible combination with a merger, although it did not name the prospective target company.
Glencore and Xstrata share a chairman in Will Strothotte. Glencore boss Ivan Glasenberg also sits on the board of Xstrata as a non-executive director. Xstrata chief executive Mick Davis would have control of the fused entity should the two companies merge, it is understood.
A marriage between Glencore and Xstrata would create a FTSE100 supergroup larger than Anglo American, with whom Xstrata unsuccessfully tried to merge last year.
Xstrata is valued at £33.4bn according to Friday’s share price. Glencore is worth £21.9bn according to its Christmas bond issue, but the complexities of its trading business make an accurate valuation fiendishly difficult to calculate.
Glencore and Xstrata declined to comment on plans for a tie-up.
Glencore has become renowned for its secrecy in the 36 years since it was founded by Marc Rich, a controversial commodities trader. Rich fled the US as a fugitive after being convicted of tax evasion before he was pardoned by then-President Bill Clinton in 2001.
Rich sold his stake in the company to management. But a merger could crystallise multi-million pound fortunes for Glasenberg and other executives, converting their relatively illiquid holdings into shares traded on the London market. Locking in talented Glencore figures will be a challenge should the deal go ahead.
GLENCORE and Xstrata’s impending nuptials will throw off a confetti shower of up to £500m in fees for City advisers.
Set to snap up the lion’s share of the fees is Deutsche Bank.
The German bank has a long-running relationship with Xstrata and will take a leading role in advising the FTSE 100 miner.
In Glencore’s corner are Morgan Stanley, Citigroup and reportedly Credit Suisse.
Glencore’s advisers and management are now said to be in second round meetings with top Xstrata shareholders. A deal would be the second-largest piece of corporate activity in the UK this year, after Prudential’s pursuit of AIA.