Xstrata, Glencore Lock on Talks for $80bn Merger

Xstrata, one of the biggest mining operators in Australia, is reportedly negotiating with giant commodities trading firm Glencore for a likely block-buster merger that analysts said could easily reach $US79 billion.

According to Reuters, Glencore and Xstrata officials have been engaged in talks for an all-share deal that will allow the former to increase its existing 34 percent stakes on Xstrata.

Glencore, reports said, aims to secure up to 60 percent of the combined group. Characterised by analysts as the merger of equals, the marriage is almost certain, reports said, and the only details that need to be ironed out is the specific amount of money that Glencore is willing to shell out.

The finalisation of the deal will also depend on how much Xstrata shareholders are willing to accept, with Reuters reporting that top investors of the mining group insisting that any offer from Glencore should reflect present and future value of the company.

"I don't see any scenario where a nil-premium merger will get shareholder approval," one major Xstrata shareholder was quoted by the news agency as saying.
Glencore is reportedly eyeing to dangle its offer of 'equalisation' premium to Xstrata that will provide share ratio adjustments, which in turn will carry the market value of the two entities, plus provisions for future growth.

Credit Suisse told Reuters that a premium of 11 percent could be the numbers that would seal the deal, with analysts affirming that the two parties will agree on a low two-digit threshold.

Another key issue to be settled is who among the companies' two CEOs, Ivan Glasenberg of Glencore and Mick Davis of Xstrata, will emerge as the man in charge.

Sources cited by Reuters suggested that the more experienced Davis will take the helm of the new entity while Glasenberg, formerly of HSBC, will be given an equally high-profile executive role as the merged corporation will definitely require his trading skills.

The corporate marriage will fuse two firms that carry them incredible portfolios, with Glencore boasting of successes gained though diversified holdings that spanned land and oil interests and various commodities investments.

Xstrata, on the other hand, will bring in its reputation of as the fourth largest miner in the world, with existing projects worth close to $20 billion that will be completed over the next two years, Reuters wrote.

The market is virtually convinced that the union will take place and any differences between the two, if any, will be settled and reconciled. "These two companies were expected to merge and this is obviously a little bit faster than we had anticipated, but it makes sense given how the companies have performed and the current market positions," Tim Dudley of Collins Stewart told Reuters. Glasenberg himself is optimistic that Glencore and Xstrata will be joined together, a sentiment that he did not hide while in Moscow. "We've always had the belief these two companies should be together," the Glencore chief said.