It’s set to be the biggest ever merger deal in the mining sector.
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The new group will have mining assets from Asia to Africa and will have the clout to look at other deals. So what’s in the deal?
From Glencore’s point of view, it gets more mining assets that it can put through its commodity trading business. In theory, the more secure its mining supply is, the better it can serve those customers. It simply has more opportunities to trade.
From Xstrata’s point of view, Glencore already has a big stake in Xstrata, so it’s not clear where else Xstrata might go. But it already uses Glencore as a marketing outlet for its minerals, so there’s a natural fit for both companies.
It’s expected that authorities will take a long look at how this potential powerhouse might dominate key markets like coal, copper and zinc. Clearly, it’s going to be a big company. But whether there’s a killer anti-trust case for regulators to answer is less clear.
Glencore, for instance, is a pretty secretive company. Not much is known about it and there’s an opportunity to carry out a thorough inquiry to see how it works.
The new company won’t be as big Rio Tinto, BHP Billiton or Brazil’s Vale, but it would rank as the world’s largest thermal coal exporter, the biggest zinc producer and the third largest copper miner.
And it’s in iron ore where Xstrata wants to make a mark – and free from debt, it may be able to acquire another big player.
The deal has already been threatened by shareholders, who’ve said they’d vote against the merger. But despite two of Xstrata’s top 10 shareholders saying they’ll vote against it, their objections are based on price – they think Xstrata’s shares are undervalued.
It’s thought a deal may still be possible if both sides can agree on a better premium.
In response, Xstrata shares fell more than 2% on the news while Glencore’s rose by almost the same amount.