Xstrata confirmed during early February that it had been approached by and is in discussions with Glencore International plc regarding a possible merger of equals which may or may not lead to an offer being made by Glencore for Xstrata.
Both companies are headquartered in Switzerland. Glencore launched a $10 billion IPO last year and is listed on the London and Hong Kong Stock Exchanges.
The IPO provided Glencore the capital it needs to make an acquisition of this magnitude. The combined company would have a market capitalization of more than $100 billion, placing it in a No. 3 position behind BHP Billiton and Vale, and just above Rio Tinto. Glencore, which currently owns 34% of Xstrata, has until March 1 to announce whether it will make an offer. This is the first time that formal merger talks have been confirmed publicly. In 2010, a privately-held Glencore proposed a merger with Xstrata and was rebuffed.
Xstrata was formed in 2002 when it purchased Glencore’s coal assets. Today, Xstrata is one of the world’s largest metals and mining companies. It mines coal, copper, nickel and zinc, and other metals, such as ferrochrome and vanadium. The company also provides technical services to the mining business. Xstrata has more than 100 mines and it operates in 20 countries, employing more than 70,000 people. Last year the company mined 85 million metric tons (mt) of coal, 889,000 mt of copper, 106,000 mt nickel and 738,000 mt zinc.
Founded in 1974, Glencore has evolved from purely marketing commodities sourced from third parties into a diversified natural resources group. The group also provides financing, logistics and other supply chain services to producers and consumers of commodities. Directly or through its subsidiaries, Glencore holds significant stakes in publicly-listed mining companies including Xstrata Plc (UK), Century Aluminum (USA), Katanga Mining (Canada), Minara Resources (Australia) and UC Rusal (Hong Kong). Its trading operations employ more than 2,700 worldwide in 40 countries. The company’s industrial installations employ more than 54,800 in 30 countries. The group trades much of Xstrata’s commodities and is the sole distributor of its nickel and cobalt production. Integrating Glencore’s trading business and mining assets with Xstrata’s mining assets could be an interesting mix.