| Toronto | London | Jeddah | Moscow | Sydney |
IRJ – February 7 – London-listed Swiss-headquartered mining and commodities giants Xstrata Plc. (“Xstrata”) and Glencore International Plc. (“Glencore”) have moved on a US$90 billion deal set to create a combined group ranking in at the number four spot of the world’s largest mining houses.
The landmark M&A, deemed a “merger of equals” by both parties, will see Xstrata shareholders receive 2.8 Glencore shares per Xstrata share held—a 17 per cent premium on Xstrata’s average share price for the past 20 days.
Reports state that, at least initially, Xstrata boss Mick Davis will assume the post of chief executive for the combined company, “Glencore Xstrata International Plc.”, and Glencore chief Ivan Glasenberg, one of Switzerland’s richest individuals, will become deputy chief executive.
Glasenberg said that the company—to be reunited some 10 years after Xstrata was formed following the spin-out of Glencore’s Australian and African coal assets—will be “a new powerhouse in the global commodities business”.
Glencore already owns 34 per cent of Xstrata and the deal valuing the miner at £39.1 billion will see the commodities giant buy $41 billion in shares, creating an entity with sales worth $209 billion, 101 mines and over 50 metallurgical works in 33 countries, and approximately 130,000 employees.
Xstrata shareholders reject “undervalued” deal
However, the deal is not to all Xstrata shareholders’ tastes. Xstrata’s fourth largest shareholder, Standard Life Investments, says it will vote against the deal because it “clearly undervalues” Xstrata. Likewise, Schroders Plc. may follow suit.
“This is a fabulous deal for Glencore, it’s probably a great deal for the Xstrata management, but it’s a poor deal for Xstrata’s majority shareholders” Schroders’ head of U.K. equities, Richard Buxton, said in a Reuters interview.
Further hesitation has arisen regarding leadership proposals. Reports state that Glasenberg, who is set to become a major shareholder given that he is a 15 per cent stakeholder in Glencore, may be dissatisfied by acting as deputy chief executive.
Share prices have also reflected market reticence about how each party may lose out. On February 6, Glencore shares fell 4.52 per cent in London as investors feared that the trading giant may offer an unfavourably high premium to see the deal through. Similarly, Xstrata fell 2.1 per cent by 10:16am in London trading on February 7 as qualms about it being potentially undervalued took hold.
Reports also reveal that such a deal has been in discussion for some time. Glasenberg said that Glencore and Xstrata have “been talking every few weeks” since the former conducted its $10 billion IPO in London last May, and Xstrata’s Davis also said that the move has been talked about “for many years”.
Glencore has brought in Citigroup and Morgan Stanley to advise on the transaction. Xstrata has called on Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc. to do the same.
What is Xstrata worth?
Xstrata also posted its 2011 preliminary full-year results to December, Tuesday, which heavily featured commentary on why the merger ought to prove strategic for both parties.
Figures show that the mining multinational’s earnings before interest, tax depreciation and amortisation (EBITDA) rose to $11.6 billion, 12 per cent, and annual revenue hiked by 11 per cent to $33.877 billion. The company also posted sustainable cost savings of $391 million—in large part due to higher production volumes from low-cost coal operations.
The report draws synergies between second-half 2012 operational expansion plans—including the Antapaccay expansion in Peru, Koniambo nickel project in New Caledonia and committing $2.6 billion to seven growth projects globally—and the proposed Glencore-Xstrata merger. It discusses how the combined group will be poised for future growth with respect to Asian demand and commodities outlooks against the fragile U.S. dollar, and describes the offer as favourable for Xstrata stakeholders, without posing undue cost to those of Glencore.
https://twitter.com/IRJmagazine
The potential £50 billion (US$82 billion) merger-of-equals between Swiss commodities and mining neighbours Glencore International Plc (“Glencore”) and Xstrata Plc (“Xstrata”) is quite literally yesterday’s news now that early market indications have thrown mining multinational Anglo American (“Anglo”) into the mix.
Rumours abound on whether Anglo may prove to be a future takeover target should the “Glenstrata” merger unfold. Anglo shares hit their highest closing level in eight months on the Johannesburg Stock Exchange (“JSE”), Thursday, at 340.63 rand up 3.7 per cent. Anglo also climbed 3.6 per cent to a six-month high of 2,830.5 pence in London, Thursday.
A “Glenstrata” takeover of Anglo, one of the most leanly priced major miners and currently worth about $59 billion, would see the combined company (Glencore-Xstrata merger depending) rocket up the global super-major mining polls. Bloomberg data released Friday shows that if such transactions take place, a conglomerate of all three multinationals would outgrow Rio Tinto Plc (“Rio”) and stand alongside the world’s largest revenue generating miner, BHP Billiton (“BHP”).
Anglo’s stock is favourably priced and sells for 6.4 times its earnings, data reveals, noting that it is cheaper than its peers apart from iron ore-focused Brazilian group VALE S.A. Furthermore, with operations in every bracket from diamonds to platinum and coal on practically every continent, it may present a highly diverse opportunity; well matched given Xstrata’s diversification into Asian and African coal, nickel and copper, since its formation upon the spinout of Glencore’s Australian and African coal portfolio a decade ago. In October 2009, Xstrata’s interest in Anglo was clear when it proposed a merger worth $47.4 billion. This was subsequently dropped and no formal bid lodged days before the deadline to do so.
Currently, Glencore holds 34 per cent of Xstrata and would need to reclaim approximately 17 per cent to gain control of the company. Data released Thursday revealed that Xstrata’s outstanding company value not currently held by Glencore is worth an estimated $35 billion. Combined, “Glenstrata” would house a workforce of over 120,000 employees and generate annual revenues of approximately $175.5 billion. Adding Anglo would create a landmark M&A chain.
https://twitter.com/irjmagazine
It’s our anniversary in May: the magazine is turning a year old, and we’re continuing to turn heads. Stay tuned on April 23rd for our look back at a year in the news, our coverage of resource issues and trends, and a cover story that will knock your socks off.
It’s been a great year and this one is looking to be even better. Don’t forget to visit the site on April 23rd!
At IRJ, we’ve been recently following the disaster at Massey’s Upper Big Branch mine, which resulted in the deaths of 29 hard-working West Virginians. And personally, as an editor covering this sector, and a firm believer in safety in what is a very critical north American industry, I am flabbergasted by the way Massey has responded to the crisis.
We read stories about mining disasters resulting in deaths all the time—but we think to ourselves “it’s a third-world country, they don’t have the same standards” or “maybe it was a fluke”—but this, quite frankly, is forever going to be a dark spot on a very heavy regulated, and predominantly safe industry. We’ve interviewed thousands of miners and executives who not only preach safety to the public, but exercise it from day-to-day, often going above and beyond to make sure that safety is ingrained in workers’ lives—not just mandated from the top down. Then you have the explosion at Upper Big Branch, and it’s a shame, because of the clear lack of cohesiveness between Massey’s public face, and the reality at the company. When your motto says “S-1 means Safety First at Massey Energy Company and it’s not just a slogan. It is our top priority every day. We strive for sustainable excellence in safety and freely share our safety innovations to benefit the entire industry” you should be prepared to back it.
Massey should be putting out an inundation of press releases explaining how this happened, why, and explaining their neglect. Instead, there appears to be a relative lack of care to its PR initiatives.
Through and through. The bottom line is safety. Otherwise you tarnish not just your image, but an industry that needs to thrive.
It’s the worst mine accident in the States since 1970—and should never have happened in the first place.
Hint to Massey’s PR team: take off all of the verbage from the website relating to your safety commitment—you’re not fooling anyone, and right now, no one believes you. The number one rule of thumb, when admitting you’re wrong, is admitting it. Massey should take notes from Maple Leaf Foods, Johnson & Johnson, and other companies who have failed in the safety department, but have restored their credibility with an honest, forthright approach to the public.
It’s hard to believe, but it’s been almost a full year since George Media launched The International Resource Journal.
The May issue will be our anniversary edition, and we’re so excited about what’s going to be inside. We’ll take a look at the year in resource news, feature some very exclusive interviews with experts in the industry, and focus on some innovative companies in oil and gas that are setting the bar for production in 2010.
Thanks for reading this past year and stay tuned…May IRJ comes out April 23rd!
With all the craziness of PDAC last week, the IRJ team didn’t have a lot of sitting time to update our blog—but we’re back! And I have to say—things are looking up for the mining sector, there was definitely a positive buzz at the show.
We’re still reeling from all the excitement… being in a building with 20,000 other avid resource sector advocates can really impress upon you some ideas.
Were you at PDAC? If so, what was the most rewarding part of the convention for you? My favourite aspects of the show were the “country presentation rooms” and, ahem, the surprise appearance of hockey legend Gordie Howe!
Send your comments or feedback to sarak@georgemedia.ca.
Our coverage of the event will be published next week, on Tuesday March 23rd, at www.irjonline.com.
If you want to see PDAC’s coverage, go to www.pdac.ca.
Until next time!
With the way commodities performed last year around the world—who really wanted to attend a conference, or go to a mining show, in order to talk about making deals or forge new partnerships?
Times have surely changed. Along with thousands of other eager attendees, I will be at the Prospectors and Developers Association Conference next week, Monday through Wednesday, scoping out new stories and making some new contacts. Coverage will be included in all George Media publications next month.
Though last year was tough for the sector, I’m looking forward to re-connecting with old friends, and hopefully making some new ones!
George Media will not be at a booth, but you can surely find me, or my colleague Aaron Weafer, scoping out the scene. We look forward to meeting you!
With its central Toronto locale, down the street from the TSX, PDAC 2010 is sure to be a hub of activity for anyone who’s considering investing, reporting, or looking for new strategic partners. For more information and to register visit http://www.pdac.ca/pdac/conv/index.html.
See you there!
Sara Kopamees, Editor in Chief
With the way commodities performed last year around the world—who really wanted to attend a conference, or go to a mining show, in order to talk about making deals or forge new partnerships?
I’d like to take the opportunity to encourage those in the resource business to consider registering for the Prospectors and Developers Conference in Toronto, Ontario in early March.
I’ll be at the conference scoping out new stories and hopefully making some new contacts. Though last year is tough, it might be a good time to get out there and meet new people (if you don’t have to spend too much to fly, of course).
With its central Toronto locale, down the street from the TSX, PDAC 2010 is sure to be a hub of activity for anyone who’s considering investing, reporting, or looking for new strategic partners. For more information and to register visit http://www.pdac.ca/pdac/conv/index.html
As investors wait for minutes from the U.S. Federal Reserve’s January policy meeting, the TSX could signify new confidence in the resource sector. Despite tentative feelings towards the commodities at the beginning of the year, the TSX seems to set the pace for a renewed risk appetite. Rising oil prices and positive gold news shows that maybe, the sector is coming back and renewed investment frenzy is upon us.
The question is: What companies will investors be watching in 2010, that will help renew an appetite for commodities investment?
This week, AIG gets a shout-out for issuing even more bonuses to its executives–sometimes people have to learn the hard way, twice. After public fury over the $165-million paid from bailout funds in March, AIG is back with the handouts. Next week, millions more will make its way around the C-Suite.
No, this isn’t Canadian news, but it’s an issue that Bay Street isn’t totally innocent of either (READ: Nortel). It’s certainly a worthwhile discussion.
Some say executives are entitled to these bonuses because it’s in their contracts, and cutting them out would set a negative precedent. Others say it was executives that drove these companies into the ground and don’t deserve to be compensated for performance. As a non-expert, I say (struggling) taxpayers didn’t write the contracts and therefore aren’t liable to fulfill said contracts.
Of course, the public is rightly enraged. When unemployment rates are increasing by the month, it’s not surprising there is little interest in paying for other peoples’ (undeserved) Ferraris/McMansions/French villas.
The payments AIG is set to make next week are a part of the $9-million in performance bonuses promised to about 40 senior managers in 2008.
