Northern,WI 2/7/2012 (
Streetbeat) -- The discussion talks were confirmed last week by
Xstrata PLC (LSE:XTA, Pink Sheets:XSRAY) that it and Glencore International PLC (LSE:GLEN) were considering a merger, although careful to say that no assurance was given that a deal would ever materialize. This morning, that deal came public with the two industry giants agreeing to merge in an all-share deal that would create a $90 billion natural resources behemoth.
Glencore, a leading commodities trader that went public trading in the United Kingdom in 2011, already owns a 34 percent stake in Xstrata, one of the world’s largest mining companies. Per the agreement, Xstrata CEO Mick Davis will head the merged company that will have operations spanning the entire gamut of the commodities sector...
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The deal puts a value on Xstrata of 1,290.10 pence ($20.42 USD) a share, or US$61.9 billion, representing approximately a 15 percent premium to Xstrata’s closing price on February 1, 2012, the day before the merger discussions were disclosed. Under the deals current terms, each Xstrata shareholder would receive 2.8 Glencore shares for each Xstrata share they hold. Glencore shareholders would control 55 percent of the new company, to be called Glencore Xstrata International, and catapult the new company to the fourth largest mining group in the world by market cap.
The deal has quickly drawn attention as to the valuation of Xstrata with its two leading shareholders immediately coming forth in opposition of the merger. Standard Life (LSE:SL), who has approximately a 2 percent stake in Xstrata, feels the deal undervalues the company. Standard Life has already stated that it will vote against the merger as it stands. Schroders (LSE:SDR), which holds a 0.6 percent stake in Xstrata, also said it will vote down the deal, saying that the merger terms presently are a great deal for Glencore – and probably a good deal for Xstrata management – but a poor deal for Xstrata’s majority shareholders.
When it comes time to vote, Glencore will not be permitted to cast a ballot for the proposed deal, which requires a 75 percent approval rate from shareholders. As such, this equates to only 16 percent of current shareholders to vote against the merger to nix the deal.
Moreover, antitrust regulators may find issue with the combined company because of its enormous immediate control in the industry. With operations in more than 20 countries, Xstrata is already one of the world’s largest producers of ferrochrome and vanadium, which are used in steel making; the fourth largest producer of copper in the world; and largest exporter of seaborne thermal coal used to generate electricity, in addition to other metals that it produces. Glencore is involved in the production, sourcing, marketing and distribution of a wide array of commodities. Cumulatively, the company would control more than 25 percent of the global zinc market and internationally-traded thermal coal market, in addition to up to 15 percent of the global copper, lead and ferrochrome markets.
Glencore is being advised by Citigroup and Morgan Stanley, while Xstrata is being advised by Deutsche Bank, Goldman Sachs, Nomura and JPMorgan.
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