On the verge of a blockbuster merger, two companies now face a roadblock by some major shareholders. The merger of commodity trading giant Glencore International and mining heavyweight Xstrata would reportedly be the largest global mining deal in history.
Glencore International, which already owns 34% of Xstrata, has agreed to buy the remaining stake for about $41 billion. If successful, the acquisition of Xstrata by Glencore would create a $90 billion “merger of equals.” The deal has been in the works for years, and even secretly tagged with the codename Everest. The combined company – under the new name Glencore Xstrata International – would be the world’s fourth largest mining group by market cap (behind BHP Billiton, Vale, and Rio Tinto).
However, the marriage of the two behemoths has been opposed by some shareholders, who believe Xstrata’s shares have been undervalued. Chief opponents are asset managers Standard Life and Schroders, which own about 5.6% of the shares needed to approve the acquisition. The deal needs to be given the nod by 75% of shareholders (excluding Glencore). Regulatory authorities also need to give their approval. If given the green light, the new company would create a formidable force in markets such as thermal coal, copper, zinc, and ferrochrome, according to this Reuters story.
If combined, Mick Davis, now chief executive of Xstrata, will become CEO of the new company. His longtime friend Ivan Glasenberg, now chief executive of Glencore International, will serve as his deputy CEO and president. The two men have been heading negotiations between the two companies for six to seven years, and Glencore’s $10 billion IPO in 2011 helped move up the marriage date. However, unhappy shareholders wanting a higher offer for Xstrata might just force a prolonged engagement – or even make the two companies go their separate ways.