RECOMMENDED MERGER OF GLENCORE AND XSTRATA (9252W)

TIDMGLEN TIDMXTA

RNS Number : 9252W

Glencore International PLC

07 February 2012

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION (IN WHOLE OR IN PART) IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

NEWS RELEASE

RECOMMENDED ALL-SHARE MERGER OF EQUALS OF

GLENCORE INTERNATIONAL PLC AND XSTRATA PLC TO CREATE UNIQUE $90 BILLION NATURAL RESOURCES GROUP

7 February 2012

Summary

o The Glencore Directors and the Independent Xstrata Directors have reached agreement on the terms of a recommended all-share merger of equals

o Creation of a major natural resources group with a combined equity market value of $90 billion and a unique business model, fully integrated along the commodities value chain, from mining and processing, storage, freight and logistics, to marketing and sales

o Merger ratio of 2.8 New Glencore Shares for every Xstrata Share held, excluding Xstrata Shares already owned by the Glencore Group, providing Xstrata Shareholders other than Glencore with a 45 per cent. stake in the Combined Entity

o The Merger values each Xstrata Share at 1,290.10 pence and the entire issued and to be issued share capital of Xstrata at approximately GBP39.1 billion ($61.9 billion) and represents a premium of:

o approximately 15.2 per cent. to Xstrata's closing share price of 1,119.50 pence as at 1 February 2012, being the last business day prior to the announcement by Xstrata that it was in discussions with Glencore; and

o approximately 27.9 per cent. to Xstrata's volume weighted average share price of 1,008.91 pence over the three-month period ended 1 February 2012, being the last business day prior to the announcement by Xstrata that it was in discussions with Glencore

o Combination of two complementary businesses with long-standing links and the logical next step for both companies against a changing industry environment

o Combines the premier global commodities marketing business and a world-class operator of metals and mining assets, each with outstanding track records of growth and value creation, and integrates two portfolios of assets and projects with industry leading growth prospects and combined production growth of 11 per cent. on a compound annual basis to 2015

o Combined Group will have a significant and expanded operational footprint, including positions in the next major regions for mining investment, including African copper-belt, Kazakhstan and South America

o Creates substantial new optionality and greater strategic and financial flexibility

o Combined Group will benefit from enhanced scale and market positions in the production and marketing of key commodities, as well as an industry-leading diversification profile by commodity and which improves cash flow diversification

o Proven management team to be led by current Xstrata CEO, Mick Davis, as CEO of the Combined Group, Ivan Glasenberg, current Glencore CEO, as Deputy CEO and President, Trevor Reid, current Xstrata CFO, as CFO and Steven Kalmin, current Glencore CFO, as Deputy CFO

o Combined Group will benefit from a robust corporate governance structure with an aligned strategy to create superior shareholder value. Sir John Bond, current Xstrata non-executive Chairman, will be nominated as non-executive Chairman of the Combined Group and the Combined Group's Board will also include Mick Davis, Ivan Glasenberg and a further eight non-executive directors, four from each of Xstrata and Glencore's current Boards

o Glencore and Xstrata management teams will be deployed according to their key strengths. Operating assets will be integrated into the existing Xstrata business units, while marketing will be managed by the existing Glencore management teams

o Best in class sustainability and operating expertise to be applied across the Combined Group's operations to underpin access to natural resources and a social licence to operate

o Estimated annual EBITDA synergies of at least $500 million in the first full financial year of the Combined Group, predominantly marketing related

o Expected to be earnings per share accretive to Xstrata Shareholders in the first full financial year of the Combined Group(1)

o For the 12 months ended 31 December 2011, Glencore generated revenues of $186.2 billion and adjusted EBITDA (before exceptional items) of $6.5 billion(2)

o For the 12 months ended 31 December 2011, Xstrata generated revenues of $33.9 billion and EBITDA (before exceptional items) of $11.7 billion(3)

o On a combined basis for the year ended 31 December 2011, the Combined Group would have generated revenues of $209.4 billion and adjusted EBITDA of $16.2 billion(4)

o The Merger will be effected by means of a Court sanctioned scheme of arrangement of Xstrata under Part 26 of the UK Companies Act, pursuant to which Glencore will acquire the entire issued and to be issued ordinary share capital of Xstrata not already owned by the Glencore Group

1. This statement should not be interpreted to mean that earnings per share for Xstrata Shareholders will necessarily be greater than those for the year ended 31 December 2011.

2. These figures are unaudited but are extracted from the Glencore Trading Update in Appendix 4 and include some figures which are included in the Glencore Profit Estimate. See Appendix 4 for further details.

   3.     Xstrata's preliminary results for the same period were released today and are available at www.xstrata.com. 

4. Combined revenue excludes sales made between Glencore and Xstrata and combined EBITDA excludes Glencore's equity accounted share of Xstrata's income.

Xstrata's operating businesses and Glencore's marketing functions will continue to operate under their existing brands. It is proposed that the Combined Entity will be called Glencore Xstrata International plc, listed on the London and Hong Kong Stock Exchanges, with its headquarters in Switzerland and will continue as a company incorporated in Jersey.

The Independent Xstrata Directors, who have been so advised by each of the Xstrata Financial Advisers, consider the terms of the Merger to be fair and reasonable. Accordingly, the Independent Xstrata Directors intend unanimously to recommend Xstrata Shareholders to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Xstrata General Meeting as the Independent Xstrata Directors who hold or are beneficially entitled to Xstrata Shares have irrevocably undertaken to do in respect of their own Xstrata Shares (representing approximately 0.1 per cent. of the issued ordinary share capital of Xstrata). In providing its advice, each of the Xstrata Financial Advisers has taken into account the commercial assessments of the Independent Xstrata Directors.

The Glencore Directors consider the Merger to be in the best interests of Glencore Shareholders taken as a whole. Accordingly, the Glencore Directors intend unanimously to recommend Glencore Shareholders to vote in favour of the resolution to be proposed at the Glencore General Meeting to approve the Merger and related resolutions as the Glencore Directors who hold or are beneficially entitled to Glencore Shares have irrevocably undertaken to do in respect of their own Glencore Shares (representing approximately 16.8 per cent. of the issued ordinary share capital of Glencore).

Mick Davis, Xstrata plc Chief Executive Officer commented:

"A merger between Glencore and Xstrata offers a 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.

"Our industry landscape is evolving ever faster. Sources of supply are diverging from traditional mining regions to more complex and disparate locations, with a range of new industry participants seeking access to markets. At the same time, demand growth has shifted from Europe, Japan and the US, to emerging Asian economies. The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage. 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.

"Increased scale and diversity will improve our risk profile, enhance access to capital markets and allow us to participate in industry consolidation. With access to superior market intelligence, relationships with thousands of suppliers and customers and the sustainability and operating expertise to operate in both existing and emerging producing regions, Glencore Xstrata will be well placed to build a distinct competitive position and capture new opportunities across the globe.

"The Merger also offers exciting career prospects for both companies' people within a dynamic, decentralised and entrepreneurial global corporation. I look forward to discussing this opportunity with our shareholders over the coming weeks."

Ivan Glasenberg, Glencore Chief Executive, said:

"We have a fantastic opportunity to 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.

"This is a natural merger which will realise immediate and ongoing value from marketing the Combined Group's products to maximise arbitrage opportunities, blending, swapping and storing to meet customer needs more exactly. But the opportunity is even greater than that.