GLENCORE SET FOR £50BN MEGA-DEAL
MINING giants Xstrata and Glencore have revealed they are in talks over a merger that would create the world’s fifth largest commodities company, potentially worth over £50bn and with revenues of nearly $200bn.
If the deal goes ahead, Glencore’s outspoken chief Ivan Glasenberg is set to cede the chief executive spot to his long-time rival and head of Xstrata Mick Davis.
But two sources familiar with the situation said that the plan would be for Glasenberg to take a deputy role only temporarily, so that Davis could collect some of the benefits of the merger’s synergies before moving on from the company.
Glasenberg is prepared to cede control “to get the deal done”, said one source, but not on a permanent basis. The source also said that Xstrata chairman Sir John Bond is being lined up to head the resulting entity, which could leave Glencore’s eccentric figurehead, Simon Murray, out in the cold.
Aside from boardroom personality differences, the source warned there could be “competition issues”.
Any deal would consist of a share-swap billed as a “merger of equals”, which a second source said indicates that Glencore is likely to pay only “a skinny premium” to Xstrata shareholders.
The source added that Davis had held out for some years despite pressure from Glencore, which already owns 34 per cent of Xstrata, in the hopes of getting a significant bonus over the miner’s share price.
But since Glencore floated in May last year, mitigating concerns over the difficulty of valuing its trading arm, the argument for a premium has diminished, said the source.
If the merger goes ahead, it will reunite two firms that were originally part of the same mining enterprise and which are now based only a few miles from one another in the Swiss towns of Zug and Baar. Glasenberg said yesterday: “We’ve always had the belief that these two companies should be together.”
Xstrata was spun off from a collection of coal assets owned by Glencore in 2001, enabling its parent to concentrate on commodities trading over mining. Since then, Xstrata has expanded into nickel, zinc and copper.
But the combined entity would be predominantly a miner. Analysts have estimated the deal would generate synergies of $700m.
Under British takeover rules, Glencore now has until 1 March to make a bid.