BAAR, SWITZERLAND — Commodities giant Glencore and major mining corporation Xstrata announced on Feb. 7 that they have reached an agreement to an all-share merger of equals.
If approved by shareholders and regulators, this merger would create a major natural resources group with a combined equity market value of $90 billion and a unique business model, fully integrated along the commodities value chain, from mining and processing, storage, freight and logistics, to marketing and sales.
The merger values each Xstrata share at 1,290.10 pence and the entire issued and to be issued share capital of Xstrata at approximately £39.1 billion ($61.9 billion) and represents a premium of: approximately 15.2% to Xstrata’s closing share price of 1,119.50 pence on Feb. 1.
The companies noted that this merger combines the premier global commodities marketing business and a world-class operator of metals and mining assets, each with outstanding track records of growth and value creation, and integrates two portfolios of assets and projects with industry leading growth prospects and combined production growth of 11% on a compound annual basis to 2015.
The new company will be led by current Xstrata Chief Executive Officer (CEO), Mick Davis, as CEO of the combined group; Ivan Glasenberg, current Glencore CEO, as Deputy CEO and President; Trevor Reid, current Xstrata CFO, as CFO; and Steven Kalmin, current Glencore CFO, as Deputy CFO.
The companies said the combined group will benefit from a robust corporate governance structure with an aligned strategy to create superior shareholder value. Sir John Bond, current Xstrata non-executive Chairman, will be nominated as non-executive chairman of the combined group.
The companies said that Glencore and Xstrata management teams will be deployed according to their key strengths. Operating assets will be integrated into the existing Xstrata business units, while marketing will be managed by the existing Glencore management teams.
For the 12 months ended Dec. 31, Glencore generated revenues of $186.2 billion and adjusted EBITDA of $6.5 billion. For the 12 months ended Dec. 31, Xstrata generated revenues of $33.9 billion and EBITDA of $11.7 billion.
On a combined basis for the year ended Dec 31, the combined group would have generated revenues of $209.4 billion and adjusted EBITDA of $16.2 billion.
It is proposed that the combined entity will be called Glencore Xstrata International plc, listed on the London and Hong Kong Stock Exchanges, with its headquarters in Switzerland, and will continue as a company incorporated in Jersey.
“A merger between Glencore and Xstrata offers a unique opportunity to create a new business model in our industry to respond to a changing environment. It is the logical next step for two complementary businesses, each with an outstanding track record of shareholder value creation, entrepreneurial management and a proven ability to spot valuable opportunities and capitalize on them,” Mick Davis, Xstrata plc CEO, said. “Our industry landscape is evolving ever faster. 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 U.S., 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. Glencore Xstrata would be well positioned to do just that, creating value from resource extraction to customer sales and services, at a time when demand for our combined products continues to grow.
“Increased scale and diversity will improve our risk profile, enhance access to capital markets and allow us to participate in industry consolidation. With access to superior market intelligence, relationships with thousands of suppliers and customers and the sustainability and operating expertise to operate in both existing and emerging producing regions, Glencore Xstrata will be well placed to build a distinct competitive position and capture new opportunities across the globe.
Ivan Glasenberg, Glencore Chief Executive, said, “We have a fantastic opportunity to create a new powerhouse in the global commodities industry. 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.
“This is a natural merger which will realize immediate and ongoing value from marketing the combined group’s products to maximize arbitrage opportunities, blending, swapping and storing to meet customer needs more exactly. But the opportunity is even greater than that. Working together, we will be able to provide customers with greater security of supply and a broader range of products and services. We buy from thousands of third-party commodity producers worldwide, and these relationships enable us to spot opportunities to grow our asset base before anyone else. Our enhanced scale, diversification and financial flexibility will enable us to capture more of these opportunities if they are right for the combined group. Our two companies have worked well together for over 10 years. I look forward to supporting Mick and working as part of what I am confident will be the leading team in the resources sector.”