Glencore Xstrata drags on FTSE as merger costs exceed expectations

Newly formed megaminer Glencore Xstrata has announced a $7.6bn (£4.9bn) post-merger writedown (release). That number is at the top of the consensus range.

The firm said that the May merger meant that "little synergy benefits" have been recognised in the first half of the year, but these are "now flowing strongly".

Mike van Dulken, Head of Research at Accendo Markets, commented:

Shares at the tail end of the UK index this morning, -3.4% and denting the FTSE100 to the tune of 5pts, as traders take issue with higher-than-expected costs/impairments/write-downs associated with the mega-merger ($10bn vs. $4-7bn consensus) resulting in an unsightly net loss for the new group’s inaugural results. This is despite profits at the operating level (EBIT) just ahead of expectations (in spite of falling revenues).

The potential for write-downs to have been a means of starting reporting life with a clean slate after a tough year for commodity prices, assets and of course the share price.

Some asking whether price paid (acquisition + integration) was too much and timing, after much delays, out as we arrive at a junction where global sentiment regarding growth and recovery have encountered rocky ground (China, Japan, US) as the future of loose monetary policy which has been pivotal for growth becomes increasingly uncertain and hotly debated.

Glencore’s CEO of Glencore Xstrata, Ivan Glasenberg, commented:

The first half of 2013 has been a transformational period for Glencore. We completed the merger with Xstrata and have made excellent progress integrating the businesses. The synergies / cost savings from the merger will be materially in excess of previous guidance, based on timely preparation and decisive action.

As we look ahead, we remain focused on the disciplined allocation of capital as well as robustly scrutinising all preexisting capital plans of the enlarged entity. We continue to work tirelessly and diligently to maximise returns on our capital and to our shareholders.