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The merger, according to Ivan Glastenberg, Chief Executive Officer of Glencore (LSE:GLEN) and a Non-Executive Director of Xstrata, will create a “new powerhouse in the global commodities industry”.
“The merged company will be the most diverse major resource group, combining two complementary project portfolios and pipelines with the best commodities marketing business in the world,” he stated.
The deal will merge the two entities, both part of the FTSE 100 Index, in a ratio of 2.8 new Glencore shares for every Xstrata share held, excluding the former’s existing shares in the latter, making Xstrata a 45% stakeholder in the combined entity.
The merger pegs the value of Xstrata (LSE:XTA) shares at 1,290.10 pence, or a 15.2% premium from its price on 1st February, the last day both companies announced they were holdings talks on the possible merger.
Talks of the merger was publicly announced on 2nd February and resulted to the upward trend of shares of both companies. Glencore shares whose shares were valued at 431.8 pence on 1st February is up 6.71% to 460.8 pence at yesterday’s trading while Xstrata shares shot up 12.67% for the same period to 1,262.00 pence.
Complementary Business
Mike Davies, CEO of Xstrata, referred to the merger as an unique opportunity to create a new business model in our industry to respond to a changing environment.
“It is the logical next step for two complementary businesses, each with an outstanding track record of shareholder value creation, entrepreneurial management and a proven ability to spot valuable opportunities and capitalise on them,” he added.
Xstrata is primarily engaged in exploration and production of metals while Glencore’s major operations are into marketing of commodities.
The new group will be called Glencore Xstrata International plc, which shall be listed on both the London and Hong Kong Stock Exchanges. The operations business will retain the Xstrata label while the marketing unit will still bear the brand Glencore.
Headquarters will be in Switzerland and the newly formed company will be incorporated in Guernsey.
Sir John Bond, Non-Executive Chairman of Xstrata said of the merger:
“The Merger will bring together two entrepreneurial and highly successful management teams to create a unique group with an exciting future. The Combined Group will continue Xstrata and Glencore’s commitment to creating superior shareholder value, including a progressive policy for dividends and a robust governance framework to ensure the Combined Group’s strategy can be delivered responsibly and transparently.”
Counterpart, Simon Murray of Glencore, commented:
“These two entrepreneurial companies have separately grown into leaders in the commodity industry, each with a different but highly complementary focus. Together these two companies will create an attractive group with the capabilities and scale to play a key role in meeting the growing global demand for commodities whilst helping resource holding countries create value from their natural endowments.”
Market Reaction
Turnover of shares for both companies at midday trading 7th February, reached at 25 million shares. Shares of both Glencore and Xstrata are down 0.6% to 457.9 pence and 2.5% to 1,230.00 pence, respectively, following this announcement.
Standard Life, holding 2 percent and 0.3 percent interests in Xstrata and Glencore, respectively, declared it would vote against the proposal noting that the ratio “clearly undervalues Xstrata’s assets and future earning contribution. Official statement from Schroders also announced it will block the proposal.
Company Spotlight
Xstrata is a major mining and metals company producing ferrochrome, vanadium, coal, copper, nickel, cobalt, and zinc operating from 20 countries around the world.
Glencore is engaged in the production, sourcing, processing, and refining, transporting, storage, financing, and supply of metals and minerals, energy products, and agricultural products, operating in 30 countries around the world.
References
↑ Glencore and Xstrata announce $90bn merger deal
↑ Glencore merger: Xstrata shareholders vow to oppose deal
