Xstrata, Glencore agree to a $90 billion merger

PanARMENIAN.Net - Mining company Xstrata and commodities dealer Glencore agreed to a $90 billion merger Tuesday, Feb 7, that will create the world's fourth largest natural resources company, The Associated Press reported.

The announcement of the terms of the deal comes just a few days after the revelation that the two companies were in discussions about a long-mooted tie-up - merger discussions, codenamed 'Everest,' have gone on for years.

The combined company will control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.

Under the terms of the deal, Xstrata shareholders would receive 2.8 Glencore shares for each of their shares. That represents a premium of 15.2 percent based on Monday's closing prices. Glencore already had a 34 percent stake in Xstrata.

The merger is projected to yield cost savings of $500 million in the first full year, primarily in marketing, while creating the world's fourth largest global diversified natural resource company, with operations in 33 countries. It will also give the combined company greater leverage to borrow money for its operations - a key advantage in the high-volume, low-margin commodities business.

The new company would be the world's third-largest copper producer, fourth-largest nickel producers and the global leader in thermal coal, ferrochrome and integrated zinc production.

The merger agreement was announced as Xstrata reported a 22 percent gain in full-year profit to $5.7 billion, compared to $4.7 billion a year earlier. Revenue was up 11 percent to $33.9 billion.

Xstrata, based in Zug, Switzerland, was formed in 2002 when it bought Glencore's coal assets. The company mines copper in the Americas, zinc in Spain and ferrochrome and vanadium in Australia and South Africa.

Glencore extracts, ships and refines raw materials from coal, to copper, to corn. It is based in the Swiss town of Baar but has its main listing in London.