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It’s been a 14-month distance that Glencore (LSE:GLEN) and Xstrata (LSE:XTA) have run, but the finish line is now within view as China’s Ministry of Commerce (MOFCOM) has approved the merger of the companies. Thus the last and final obstacle to the merger’s completion has been removed. The share price of Glencore was up 3.22% to 331.45 just before 2:00 pm, about an hour after the official announcement was released. Xstrata’s share price was up 4.42% to 1009.00. The expected effective date of the merger is 02 May 2013.
MOFCOM’s approval comes with certain conditions, including one that, following the completion of the merger, Glenstrata, the emerging company will divest all of its interest in Las Bambas, a current Xstrata copper project in Peru. The MOFCOM has set multiple pricing parameters for the sale of the Las Bambas interest, including its own approval of a buyer before 30 September 2014 and the completion of the sale by 30 June 2015. Las Bambas is a greenfield project that is not expected to begin production of an estimated 400,000 tonnes per year until 2015.
The part of the deal that seems to be grabbing the biggest headlines is not so much that Glenstrata will become the world’s third-largest producer of copper, but more so the announcement of the departure of many of the Xstrata top executives.
Xstrata CEO Mick Davis will step down from his position on the the day the merger is completed, but will remain with the new company on a consulting basis for a period of two months. The CEO’s of Copper, Nickel and Alloys, Charlies Sartain, Ian Pearce, and Loutjie Smit will step down upon the consummation of the agreement. Thras Moraitis, Executive General Manager of Corporate Affairs; Benny Levene, Chief Legal Counsel and Trevor Reid, CFO, will step down, but will remain on a consulting basis for a period of “up to six months.”
All of that is to say of the executive leadership, “Thank you very much, but we won’t be needing your help.” Whilst in many cases, if not most, high-level position changes are not announced until post-merger, this at least takes the mystery out of what Glencore’s approach will be. While it may be technically referred to as a merger, the dispatch of the top execs indicates that it is really a takeover. You don’t really think that these fellows were ready to leave “to pursue other interests” do you? Davis will be receiving one year’s salary, plus other incentives to leave.
While it is not entirely clear what Glencore’s plans are, it is certain that these gentlemen were never part of it. In order to secure MOFCOM’s approval, the new company will be required to deliver minimum tonnages of copper, zinc and lead concentrates for the eight-year period begin 01 January 2013. China is already Glencore’s largest customer.
