IT ain’t over till Ivan Glasenberg sings. Everyone knows the rationale for the deal: massive scale, a raft of cost-saving synergies, and a much-improved presence for Glencore in commodity markets.
Indeed one of the main reasons the famously secretive Glencore went public was so it could bag Xstrata, whose other shareholders were cold on a merger when the privately-held Glencore was so difficult to value.
This isn’t yet a done deal though. We understand that several big shareholders in Xstrata think Glencore should pay a sweetener. If Glencore, which already owns 34 per cent of Xstrata’s shares, insists on a nil-premium merger of equals, it could end up struggling to acquire the other 17 per cent or so it needs to take control.
Xstrata’s management has recently suggested it has “outgrown its big brother” and nothing has happened to suggest this is no longer the case.
Competition authorities are also likely to pay close attention to the power wielded by such a firm. As a massive commodities-trader-cum-miner, the combined company would surely have some influence on prices; the Chinese, for one, would be very unhappy.
If the merger goes through, we should expect a flurry of similar deals in the sector. Anglo American is the most likely to consider a tie-up or acquisition in order to retain its scale within the market.
We still think a merger is the most likely outcome, although probably with a bit of cash for Xstrata shareholders. But this is far from a done deal.
