Glencore, Xstrata agree on all-share merger of equals, creating $90bn mining ’powerhouse’

Glencore International plc and Xstrata plc have agreed to an all-share merger of equals that will create a mining "powerhouse" worth about US$90 billion. The move, which will create the world’s fifth-largest diversified mining group, is likely to set off a wave of merger activity in the mining sector.

Under the long anticipated deal, Xstrata shareholders will be given 2.8 new Glencore shares for every Xstrata share, excluding the 34% already held by Glencore, giving them 45% stake in a combined business whose interests will range from mining and processing through to marketing and sales.

The terms represent a premium of 15.2% to Xstrata's closing share price on February 1, the last business day before the mining group announced it was in talks with Glencore.

As widely predicted, Xstrata’s chief executive Mick Davis will take on the same role in the enlarged group, with Glencore’s CEO Ivan Glasenberg becoming deputy CEO. Xstrata’s non-executive chairman Sir John Bond will retain that role in the new group, and the board will consist of eight non-executive directors: four each from both companies.

Glencore and Xstrata estimated that the merger will lead to annual EBITDA savings of at least US$500 million in the first full financial year, predominantly marketing related. A large number of shareholders hold stakes in both companies so potential synergies will be a key issue as investors look to measure the extra value to be had from holding shares in a combined group.

"We have a fantastic opportunity to create a new powerhouse in the global commodities industry," said Mr Glasenberg. "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."

Xstrata's operating businesses and the marketing functions of Glencore, the world’s largest diversified trading group, will continue to operate under their existing brands.

"Our industry landscape is evolving ever faster," said Mr Davis. "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."
The new company, to be called Glencore Xstrata International plc, will be listed in London and Hong Kong, and headquartered in Switzerland.