Two mining companies listed on London’s leading shares index have entered talks over a merger which would create a firm worth more than £51bn.
FTSE 100-listed commodities trader Glencore is keen to join up with Anglo-Swiss company Xstrata. A merger deal would provide both groups with a better chance of competing against other mining giants, including Rio Tinto and BHPBilliton.
With products including coal, foodstuffs, gold and oil, Glencore is the world’s largest commodities trader. It has been eyeing a move for Xstrata for some years and already holds a 34 per cent stake in the business.
The other party in what would be seen as a merger of equals is Xstrata, which is the world’s biggest exporter of thermal coal, while its products also include nickel, copper and zinc.
Responding to speculation about a possible merger, Xstrata issued a statement. It said: “Xstrata confirms that it has received an approach from and is in discussions with Glencore International regarding an all-share merger of equals which may or may not lead to an offer being made by Glencore for Xstrata. There can be no certainty that any offer will be made.”
Glencore became the first company to be fast-tracked into the FTSE 100 Index in May last year in the largest floatation seen in 25 years in London. To comply with the UK’s “put up or shut up” rules, Glencore must now make a formal offer by March 1, or withdraw its interest.
Shares in Xstrata soared once the approach was confirmed, going up by 10 per cent to give it a market value of £36.1bn. Glencore’s shares were also boosted by the news, rising by five per cent to give a market value of £31.5bn, although this remains 15 per cent lower than its floatation price.
Speaking to Bloomberg, IG Markets analyst Cameron Peacock said: “Combining gives them that much more scale to compete against some of the bigger players,” including BHP Billiton and Rio Tinto.
Meanwhile, Prasad Patkar from Platypus Asset Management said: “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.”
He continued: “On one end you have great mining expertise, on the other you’ve got great marketing expertise. Two and two together should make five.”
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