In a deal that would create an $82 billion commodities giant, Xstrata and Glencore are in discussions to merge. This would create a company that would rival BHP Billiton in the mining/commodities production market.
Glencore already has an $17 billion stake in Xstrata, or 34% of the Swiss mining company. This deal would simply further merge a relationship already on the books. Consolidation in the mining industry is inevitable as the grab for global resources will continue through this century with the emergence and development of Southeast Asia (ASEAN countries) as a major wealth generation engine.
Glencore’s CEO said that the approach they are taking towards the transaction would be a “merger of equals.” Glencore and Xstrata together create a company which then would have the ability to go on an acquisition spree. Anglo was one of Xstrata’s target back in 2009. Of course, any bid for Anglo would be met by Glencore/Xstrata’s competition, likely Riuo Tinto.
The merger would add to Glencore’s portfolio African and Asia coal, copper and nickel mines. There may be very strong synergies between the companies that would not cost shareholders a premium.
The M&A market in the mining industry should be quite active going forward given the beat-down the sector has taken even though metals prices have soared in the last few years. So, they are flush with cash and their targets ahave their market caps suppressed. Something will have to give in this industry soon.
Previous Post » Seagate Reports 300 percent Increase in its Net Profit
