As was widely expected, the Swiss Glencore International, the number one trading company in the world, has launched its own friendly offer towards the mining company Xstrata, of which it already controls 34% and whose headquarters are in the same small and rich canton, that of Zug, even if the assets are in South Africa, Australia, Canada, Latin America, Asia.
The mining wedding of the century will take place, but perhaps Glencore will have to give something more to the company's shareholders to buy: 2,8 new shares for each Xstrata title (this is today's proposal) means putting around 26 billion pounds on the plate, more or less 41 billion dollars, therefore a premium of 16-17% compared to the stock market values of recent days.
Investment funds such as Standard Life Investment and Schroeders Plc are already saying that too little if we consider that in other mergers that took place in the same sector the premium was around 22-23%. Resistance is also probable because Xstrata carries 65% of the assets of the new group, while its shareholders will have "only" 45% of Glencore Xstrata International, this is the corporate name chosen for the group that will appear in the London Stock lists Exchange and the Hong Kong Stock Exchange.
The issue of authorization by the antitrust authorities of the various countries in which the two companies operate also remains open. In fact, the union between a large mining company and the most important commercial house creates a very considerable contractual force. The Japanese buyers of thermal coal, a fuel needed after Fukushima and of which Xstrata is the leading producer and Glencore the main carrier, risk being the first to pay the price. However, it will be difficult to find a foothold to hinder the new group: Xstrata is already world number one in thermal coal and zinc and lead minerals, while it is among the top 4 producers of copper and nickel.
With Glencore, it can count on a capillary distribution network and on some plants that do not alter the international framework or that can easily be transferred to other companies. Among them, a share of the Murrin Murrin nickel mine, the Kazakh Kazzinc and others. A question mark that worries Italy is Porto Vesme, where a subsidiary of Glencore has 100% of the zinc pole, located right in the vicinity of the aluminum plants, which the US Alcoa has already decided to close.
However, the global situation was not very different even yesterday, when Glencore had 34% of Xstrata. In fact, the economies of scale that will arise from the merger are calculated at around 500-600 million dollars a year, not an exaggerated number. Just compare that to the new company's revenue, which should be no less than $209 billion a year when fully operational.
Today's press release also resolves another doubt about the future summit: Mick Davis, 53, South African by birth, current CEO of Xstrata, will be installed as chief executive, while the president will be Ivan Glasenberg, 55, also South African by birth, today Glencore CEO.
Assuming the merger goes through, expected within the year, it will be the largest in mining history, beating the $38 billion Rio Tinto paid in 2007 to buy Alcan, Canada's aluminum queen. However, the record could soon be surpassed by another multibillion-dollar deal: in fact, the race remains open towards Anglo American, a rich mouthful, which would complete the range of minerals and metals of Glencore Xstrata, thanks to Anglo's properties in the iron ore sectors, of platinum and diamonds.
