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Xstrata said it had received an approach from commodities giant Glencore International that could lead to an all share merger of equals.
Miner Xstrata is in talks with Glencore over an all-share merger of equals, it said on Thursday, confirming reports of a deal that could create a combined mining and trading group worth more than £50bn.
The world's largest diversified commodities trader owns a 34 per cent stake in Xstrata and a tie-up between the two has long been expected. Speculation accelerated after Glencore's $10bn listing last May.
Glencore said at the time that the motivation behind going public after almost four decades as a private company was to seize acquisition opportunities.
News that Xstrata had received a concrete approach and was in discussions boosted shares in both companies, with Xstrata up 13 per cent and Glencore 5.1 per cent ahead in early London trade.
Glencore's Hong Kong-traded shares had gained as much as 6 percent before trading was suspended.
"It confirms why Glencore went public. They needed the capital to buy other companies," said Ion-Marc Valahu, a fund manager at Geneva-based firm ClairInvest.
Xstrata said the talks "may or may not lead to an offer being made by Glencore for Xstrata. There can be no certainty that any offer will be made."
Glencore made no statement and a spokesman declined to comment.
"These two companies were expected to merge and this is obviously a little bit faster than we had anticipated, but it makes sense given how the companies have performed and the current market positions," Collins Stewart analyst Tim Dudley said.
Glencore chief executive Ivan Glasenberg has said he sees value in a deal with Xstrata, whose CEO Mick Davis has told analysts the prospect of having both as independently listed companies was "unsustainable."
If Glencore were to buy all the outstanding shares in Xstrata at current market prices that would cost around £21bn, making it one of the sector's biggest deals since Rio Tinto's acquisition of aluminium producer Alcan in 2007.
Xstrata said in a statement: "Xstrata confirms that it has received an approach from and is in discussions with Glencore International plc ("Glencore") regarding an all share merger of equals which may or may not lead to an offer being made by Glencore for Xstrata. There can be no certainty that any offer will be made."
