Glencore International Plc, the world’s biggest commodities trader, pursued a $89 billion combination with Xstrata Plc (XTA) as speculation mounted the terms of a transaction will be announced tomorrow.
The timing would “most likely” coincide with Xstrata’s full-year results that are scheduled for release Feb. 7, Dominic O’Kane, Ash Lazenby and Richard Knights, analysts at Liberum Capital Ltd., said in a note today. A “back-stop date” for the deal is the Glencore results on March 5, they said.
Glencore approached Zug, Switzerland-based Xstrata for an all-share merger, a transaction that would create a business with a stock-market value of about 56.5 billion pounds ($89 billion), excluding Glencore’s 34 percent stake in Xstrata. The combined entity would be the world’s biggest producer of zinc, lead and thermal coal and a top-five supplier of copper and nickel, according to UBS AG.
“It’s getting close to a done deal,” said John Robinson, chairman of Global Mining Investments Ltd., which holds shares in both Glencore and Xstrata. “It is good for both companies.”
Alison Flynn, a spokeswoman for Xstrata, and Simon Buerk, of Baar, Switzerland-based Glencore, declined to comment.
Glencore may offer 2.7 to 2.8 of its shares for each one in Xstrata to acquire the stock it doesn’t already own, the Liberum Capital analysts said. The companies have traded at an average ratio of 2.53 to 1 since Glencore’s May initial public offering, suggesting the commodities trader is proposing a “skinny premium,” the broker said.
Mining takeovers are accelerating as companies struggle to replace depleting deposits and China’s industrial growth stokes demand. Global mining deals swelled to $98 billion last year, the highest level since 2007, from $76 billion in 2010, according to data compiled by Bloomberg.
The average premium for takeovers last year was 23 percent, according to the data.
“A ratio of three Glencore shares per Xstrata share” would be “earnings accretive” for both companies, Christopher LaFemina, an analyst at Jefferies Group Inc., said in a note today. “A slightly lower ratio -- we estimate 2.8 -- would probably be high enough for Xstrata shareholders to accept.”
Glencore dropped 4.9 percent to 459.05 pence in London trading at 4:17 p.m., its biggest decline since November. Xstrata was 2.5 percent lower at 1,250.5 pence.
Mick Davis, chief executive officer of Xstrata, will head the combined company, the Sunday Times reported without citing anyone. Ivan Glasenberg, CEO of Glencore, will be deputy chief executive, according to the report. John Bond, Xstrata’s chairman, will lead the board, it said.
The Glencore and Xstrata boards are discussing a premium of 11 percent to 12 percent, the Sunday Telegraph reported, without saying where it obtained the information. Five of the top 10 Xstrata shareholders said they’re angry the company hasn’t engaged with them, and the jobs of Davis and Bond are at risk if a sufficient premium isn’t offered, the paper said, without naming the shareholders.
Joining Xstrata with Glencore would reunite the 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 merger has been anticipated ever since Glencore’s listing, Robinson said.
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