Mettle and mining

11 October 2011 By Quentin Webb

Mining M&A’s clearest fantasy deal has inched closer to reality. A Glencore takeover of its $43 bln mining affiliate looks easier after the commodity trader’s shares held up better in the recent rout. But Xstrata investors are unlikely to roll over without a substantial premium.

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Glencore, the Swiss commodity trader, floated in London and Hong Kong in May. Its London-listed shares, which were priced at 530 pence, closed on Oct. 10 at 424.65 pence. The 20 percent fall contrasts with a 33 percent drop over the same period in Xstrata, the miner in which Glencore holds a 34 percent stake.
Credit Suisse highlighted the potential for a merger given Xstrata’s underperformance in a research report on Oct. 10. “We believe Glencore sees strong benefits to a deal and a combination would create an attractive high growth and differentiated major. The longer the relative rating gap exists, the greater the market’s focus on a potential transaction will likely become,” the bank’s mining analysts wrote.
Glencore Chief Executive Ivan Glasenberg told the Financial Times in April that there were “a lot of benefits and synergies” in putting the two companies together but that Xstrata “seems more comfortable for Glencore to go public and get a market price before they may or may not enter into discussions”.
A month earlier, according to an HSBC note, Xstrata Chief Executive Mick Davis told analysts that independent listings for the two companies were “unsustainable in the longer term”.

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