Home > Mergers & Acquisitions > Xstrata board and the Glencore merger

Xstrata board and the Glencore merger

March 8, 2011

“Mick Davis, Xstrata chief executive, told analysts that for both Glencore and his company to be independently listed was ‘unsustainable in the longer term’. The comments were made in early February at a meeting after Xstrata’s results but came to light on Monday in a research note by Andrew Keen, mining analyst at HSBC, looking at the appointment of Sir John Bond as chairman.”

Glencore, the world’s largest commodity trader, posted a 40 per cent jump in full-year profit yesterday, strengthening its hand for a possible stock market listing that could value it at about $60 billion (£37bn).”

Sources & references:

Observations:

  • Mr. Willy Strothotte, current chairman of both Glencore and Xstrata, will step down from the Xstrata position in May and will be succeeded by Sir John Bond, current chairman of Vodafone.
  • Glencore’s EBITDA for 2010 was $6.2bln, with Net Income 2010 at $3.8bln on revenues of $145bln. Margin is slightly above expectations after Q3 2010.

Implications:

  • The appointment of Sir Bond, aged 70, will mainly be intended to have an experienced director of major listed companies oversee the dynamics of a potential merger of Xstrata and Glencore. Analysts expect mr. Bond to demand strong guarantees for Xstrata in a potential merger. This will potentially force Glencore to perform an IPO prior to merging with Xstrata so that a market value is set.
  • A potential merger of Glencore and Xstrata could produce synergies in 4 ways: financial synergies by combining balance sheets, reducing taxes paid and increasing cash slack; reduction of overhead costs by consolidating corporate departments; increased trading profits by improving production and contract flexibility; and operational efficiencies by combining the project portfolios of the companies.
  • Xstrata is mainly strong in base metal and coal operations. Glencore owns majority stakes in Columbia Falls, Windalco and Alpart aluminium companies in North America; Prodeco and Carbones de Jagua coal in Colombia; various zinc, lead and tin assets in Peru, Bolivia and Argentina; Zinc and aluminium plants in Europe; Kazzinc in Kazakhstan; and several base metal projects in Asia and Australia. Combining these assets would create the most diversified player in base metals and a potential world force in coal mining.

©2011 | Wilfred Visser | thebusinessofmining.com

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