Xstrata and Glencore close in on 50billion mega deal
Xstrata and Glencore will
today unveil the terms of a 50billion
mega-merger to create a powerful
new rival to the world’s mining
heavyweights.
Sources close to the talks said
the tie-up will be announced
alongside Xstrata’s full-year
results with Glencore expected
to pay a premium.
The deal would create the
fourth biggest mining group in
the world behind BHP Billiton,
Rio Tinto and Brazil’s Vale.
Merger of equals: Xstrata chairman Sir John Bond will take the same role at the enlarged company
However, the terms of the deal
could still change as Xstrata
chief executive Mick Davis holds
out for the best price.
One Footsie mining boss said
the Xstrata boss was playing his
cards close to his chest in a game
of brinkmanship designed to
extract the highest possible price
from his counterpart.
He said: ‘I think they [Glencore]
will have to pay a premium
and I’m sure Mick will sweat it
out a bit.’
The tie-up will see Xstrata chairman
Sir John Bond take the same
role at the enlarged company.
Davis will become chief executive
with Glencore’s billionaire
head Ivan Glasenberg his deputy
– a line-up that could create tensions
at the top of the firm.
It is hoped that the appointment
of Bond, who as a former
chairman of HSBC and more
recently Vodafone has wide international
experience and is wellknown
among big institutional
shareholders, will ease concerns
about the governance of the new
company.
Credit rating agency Moody’s
said a shared future would vastly
improve the two firms’ ability to
secure new lending.
In a bullish note on the merger,
Moody’s said Glencore (down
21.8p to 460.75p) could slash
costs and reduce its reliance on
third-party firms by feeding
Xstrata’s minerals into its globespanning
network of traders.
Moody’s said Xstrata would
benefit from Glencore’s 6.6bn
liquidity pool and could also tap
the invaluable market intelligence
of its prospective partner’s
traders to sell its commodities
more profitably.
The agency said Xstrata (down
21.5p to 1261.5p) would find it far
easier to raise new equity without
the looming presence of
Glencore as a 34pc shareholder
putting off other investors.
Both companies’ CDS spreads,
which measure the likelihood of
debt default, have tightened significantly
since news of a possible
deal leaked out.
Several analysts said European
and Chinese regulators were
unlikely to block a deal on competition
grounds.
If the deal were to fall apart,
City traders suggested that
Davis might make an alternative
move for platinum miner Lonmin
after he walked away from a
5.6billion bid in 2008.
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