Glencore, Xstrata agree to merger

Feb 7, 2012, 10:27 GMT

Zug, Switzerland - Swiss-based Glencore and Xstrata announced Tuesday that they would merge to form a major raw materials company with a combined market value of some 90 billion dollars.

Glencore, the world's largest commodity trader, and mining firm Xstrata said they would create a group that is 'fully integrated along the commodities value chain, from mining and processing, storage, freight and logistics, to marketing and sales.'

Both sides expected the deal to improve combined earnings before interest, taxes, depreciation and amortization (EBITDA) by at least 500 million dollars.

Total EBITDA would have amounted to 209.4 billion dollars last year, while sales totalled 16.2 billion dollars.

Glencore is currenlty Xstrata's biggest shareholder, owning 34 per cent of the company.

The commodity giant offered to pay Xstrata shareholders a premium of 15 per cent over the stock price of last Wednesday.

The merger, which is to be finalized in the third quarter, is subject to approval by competition watchdog authorities across the globe.

Two of the world's largest mining groups, Rio Tinto and BHP Billiton, failed in 2010 to merge their iron ore business as cartel authorities blocked the deal.

Glencore shares rose 1.49 per cent on the news, while Xstrata shares dropped by more than 2 per cent. Both companies are listed in London.

In 2002, Glencore sold Australian and South African mines to Xstrata, making it the world's largest exporter of coal for use in power generation.