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In a statement issued this morning, and subsequently confirmed by Glencore, Xstrata said the commodities trader has made an approach about an all-share offer for “a merger of equals.”
(Bloomberg) – Glencore International Plc, the world’s largest publicly traded commodities supplier, is in talks to buy the shares in Xstrata Plc that it doesn’t already own to add coal, copper and nickel mines from Africa to Asia.
Glencore made an approach about an all-share offer for “a merger of equals,” Zug, Switzerland-based Xstrata said today in a statement to the London stock exchange. Glencore holds 34 percent and the rest of the company is valued at 21.9 billion pounds ($35 billion) based on yesterday’s closing price. Glencore said in a statement there’s no certainty of an offer.
Joining Xstrata with Glencore, located two miles away in Baar, would reunite two groups that separated a decade ago when Xstrata bought Glencore’s Australian and South African coal mines for $2.5 billion and went public in London. The combined company may be valued at about 52 billion pounds after excluding Glencore’s stake in Xstrata.
“Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value,” Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney, said by phone before the statement.
“On one end you have great mining expertise, on the other you’ve got great marketing expertise. Two and two together should make five.”
Xstrata Shares
Xstrata shares rose as much as 14 percent in London, the most since April 2009, and Glencore rose 5.6 percent. Glencore shares gained as much as 6 percent in Hong Kong before they were suspended from trading after Bloomberg reported the potential deal, citing two people with knowledge of the plan. Shares in mining companies in Australia gained the most in more than two weeks as measured by the S&P/ASX 200 Resources index. Under U.K. takeover rules, Glencore is required to announce a firm intention to make an offer by no later than 5 p.m. on March 1, Xstrata said.
A transaction may generate savings of as much as $704 million, Credit Suisse Group AG said in a report in October. A deal would be the biggest for Xstrata since it ended a 29.2 billion-pound offer for London-based Anglo American Plc in October 2009 after Anglo’s board snubbed the approach. BHP Billiton Ltd. withdrew from what would have been the world’s biggest mining deal, a $66 billion offer for Rio Tinto Group in 2008.
“Combining gives them that much more scale to compete against some of the bigger players,” including BHP and Rio Tinto, Cameron Peacock, a Melbourne-based market analyst at IG Markets Ltd. said by phone.
Credit Default Swaps
Xstrata was 9.5 percent higher at 1,226 pence at 9:35 a.m. in London, valuing it at about 36 billion pounds. Glencore gained 4.2 percent to 450.05 pence at the same time.
Credit-default swaps on Glencore tumbled 83 basis points to 240, the lowest since June, according to CMA prices at 9 a.m. in London. A decline signals improvement in perceptions of credit quality.
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