Glencore, Xstrata agree to US$90 billion merger

The announcement of the terms of the deal comes just a few days after the revelation that the two companies were in discussions about a long-mooted tie-up — merger discussions, codenamed 'Everest,' have gone on for years.

The combined company will control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.

Under the terms of the deal, Xstrata shareholders would receive 2.8 Glencore shares for each of their shares. That represents a premium of 15.2 percent based on Monday's closing prices. Glencore already had a 34 percent stake in Xstrata.

The merger is projected to yield cost savings of US$500 million in the first full year, primarily in marketing, while creating the world's fourth largest global diversified natural resource company, with operations in 33 countries. It will also give the combined company greater leverage to borrow money for its operations — a key advantage in the high-volume, low-margin commodities business.

The new company would be the world's third-largest copper producer, fourth-largest nickel producers and the global leader in thermal coal, ferrochrome and integrated zinc production.

“The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage,” said Xstrata Chief Executive Mick Davis, who will become CEO of the merged company.

“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,” Davis said.

Davis told a conference call that he expects the merger to complete in the third quarter of this year, assuming regulators give the deal the all-clear.

Glencore CEO Ivan Glasenberg, who will take the titles of deputy CEO and president, said the merger represents “a fantastic opportunity to create a new powerhouse in the global commodities industry.”

Xstrata shares were down 1.7 percent at 1,240 pence in early trading in London; Glencore shares were up 1.1 percent at 466 pence.

The merger agreement was announced as Xstrata reported a 22 percent gain in full-year profit to US$5.7 billion, compared to US$4.7 billion a year earlier. Revenue was up 11 percent to US$33.9 billion.

Xstrata, based in Zug, Switzerland, was formed in 2002 when it bought Glencore's coal assets. The company mines copper in the Americas, zinc in Spain and ferrochrome and vanadium in Australia and South Africa.

Glencore extracts, ships and refines raw materials from coal, to copper, to corn. It is based in the Swiss town of Baar but has its main listing in London.

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