Mining company Xstrata recommends merger with commodities giant Glencore

LONDON – The board of Anglo-Swiss mining company Xstrata PLC said Monday it is recommending that shareholders accept merger terms with Swiss commodities trader Glencore PLC — a deal that would create an industry behemoth with revenues of around $175 billion.

Xstrata, which controls the former Falconbridge operations in Canada, said in a statement it was supporting the offer of 3.05 Glencore shares for each Xstrata share.

The deal values Xstrata at 31.9 billion pounds ($51.5 billion) on the shares’ closing price Friday. Glencore has a market capitalization of 23.5 billion pounds, according to data provider FactSet.

Xstrata is the world’s biggest exporter of thermal coal and also produces copper, nickel and zinc. If the deal is approved by 75 per cent of Xstrata shareholders, the merged company would be one of the world’s largest natural resources firms.

Xstrata alone has more than 70,000 employees in more than 20 countries. Xstrata Nickel, a Toronto-based subsidiary, has about 1,000 employees in Sudbury, Ont., and 850 at its mine and concentrator in northern Quebec

Glencore, one of the world’s biggest traders in raw materials such as coal, cotton and corn, went public with a $10 billion IPO last year.

Its attempt to get hold of Xstrata has developed into a long-running saga. Previous offers were resisted by Xstrata shareholders, including Qatari sovereign wealth fund Qatar Holding, which holds 12 per cent of Xstrata.

Glencore improved its original offer of 2.8 shares last month, leaving issues of management structure and executive remuneration the main stumbling blocks to a merger.

The deal announced Monday would see Xstrata chief executive Mick Davis remain as CEO of the new company for six months, then leave the company to be succeeded by Glencore CEO Ivan Glasenberg.

Xstrata said it had agreed to give shareholders a separate vote on bonuses for senior executives, a key sticking point to a deal. While Xstrata recommended that shareholders also vote in favour of the bonus scheme, the merger’s approval will not depend on it.

Mike van Dulken, head of research at Accendo Markets, said the new deal was designed to remove the issue of retention payments as a potential road-block and “hurry up termination of the seven-month saga after major shareholders recently warmed to an improved share offer.”

“The deal is not done — not just yet,” he said — though Monday’s 3 per cent rise in Xstrata’s share price suggests investors and traders “see an end-game being closer.”

Davis said the strategic rationale behind a merger was “highly compelling.”

“A merger will fuse the respective strengths of the two companies into a unique, vertically integrated natural resources group,” he said.

Glencore chairman Simon Murray said the merged company “will have the scale to play a key role in meeting the growing global demand for commodities whilst helping resource holding countries create value from their natural endowments.”

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 stock listing in London.

Glencore was founded in 1974 by Marc Rich, the fugitive trader who was controversially pardoned in 2001 by then United States President Bill Clinton just hours before he left office. Rich sold the company to its employees in 1994, and the firm has been at pains to distance itself from its founder and any whiff of improper activity, though environmental groups have since targeted the company for its mining interests.

Xstrata shares were up 2.9 per cent at 985.2 pence on the London Stock Exchange. Glencore shares were up 0.5 per cent at 344.95 pence.

— With files from The Canadian Press