UPDATE: Xstrata, Glencore To Create $90 Billion Commodities Giant

Anglo-Swiss miner Xstrata PLC (XTA.LN) Tuesday formally announced plans to merge with commodities titan Glencore International PLC (GLEN.LN) to create a $90 billion, sector-straddling giant.

The new company, to be called Glencore Xstrata International PLC, will have the scale to produce and or trade natural resources, including metals, oil, and grains, in five continents and together would have generated revenues of $209.4 billion in 2010.

Xstrata said the terms of the deal will see investors receive 2.8 Glencore shares for every Xstrata share owned, reflecting a premium of 15% on Xstrata's share price before the deal was announced. The deal will give Xstrata shareholders other than Glencore, which already has a 34.4% stake in the miner, a 45% stake in the combined group.

Shares in Xstrata fell slightly in early Tuesday trade, and Glencore shares rose, suggesting investors see the premium as being on the light side.

"The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage," Xstrata Chief Executive Mick Davis said in a statement. "Glencore Xstrata would be well positioned to do just that, creating value from resource extraction to customer sales and services, at a time when demand for our combined products continues to grow."

Xstrata estimated annual Ebitda synergies of at least $500 million--"predominantly marketing-related"--in the first full financial year for the combined group.

The company will have "a unique business model, fully integrated along the commodities value chain, from mining and processing, storage, freight and logistics, to marketing and sales," Xstrata said in a statement.

Xstrata's Davis will become chief executive for the combined group, while Glencore CEO Ivan Glasenberg will become deputy chief executive and president. Trevor Reid, current Xstrata chief financial officer, will take the same role in the new group and Steven Kalmin, Glencore's current CFO, will become his deputy.

Xstrata Chairman Sir John Bond will be nominated as non-executive chairman for the merged group.

Under the new structure, operating assets will be integrated into the existing Xstrata business units, while marketing will be managed by the existing Glencore management teams, reflecting "key strengths," Xstrata said.

It is proposed that the combined group will be listed on the London and Hong Kong stock exchanges, with headquarters in Switzerland, and it will continue as a company incorporated in Jersey.

Also Tuesday Xstrata said its full-year net attributable profit increased 12% to $5.8 billion, above expectations of $5.66 billion according to a Factset survey of 10 analysts.

-By Rhiannon Hoyle, Dow Jones Newswires; [phone]; [e-mail]

Order free Annual Report for Xstrata PLC

Visit http://djnweurope.ar.wilink.com/?ticker=GB0031411001 or call [phone]