Xstrata plc and Glencore International plc, both of which produce coal and trade heavily in the international coal markets, on Feb. 7 released a recommended all-share “merger of equals” plan that values the combined companies at around $90bn.
The Glencore directors and the independent Xstrata directors have reached agreement on the terms of a recommended all-share merger of equals. This would allow creation of a major natural resources group with a combined equity market value of $90bn and a unique business model, fully integrated along the commodities value chain, from mining and processing, storage, freight and logistics, to marketing and sales.
Glencore already owns a minority stake in Xstrata and markets some of its coal. Both companies are heavily into the coal business, with each, for example, having a major coal mining presence in Colombia, a country that ships coal into the coastal U.S. power plant market.
Current Xstrata CEO Mick Davis would be CEO of the combined company, with: Ivan Glasenberg, current Glencore CEO, as Deputy CEO and President; Trevor Reid, current Xstrata CFO, as CFO ;and Steven Kalmin, current Glencore CFO, as Deputy CFO. Sir John Bond, current Xstrata non-executive Chairman, will be nominated as non-executive Chairman of the combined company
Operating assets will be integrated into the existing Xstrata business units, while marketing will be managed by the existing Glencore management teams.
In 2011, Glencore generated revenues of $186.2bn and adjusted EBITDA (before exceptional items) of $6.5bn. Xstrata in 2011 generated revenues of $33.9bn and EBITDA (before exceptional items) of $11.7bn. On a combined basis in 2011, the companies would have generated revenues of $209.4bn and adjusted EBITDA of $16.2bn.
Xstrata’s operating businesses and Glencore’s marketing functions will continue to operate under their existing brands. The combined entity would be called Glencore Xstrata International plc, and would be listed on the London and Hong Kong stock exchanges, with its headquarters in Switzerland.
Xstrata CEO Mick Davis said: “A merger between Glencore and Xstrata offers a unique opportunity to create a new business model in our industry to respond to a changing environment. It is the logical next step for two complementary businesses, each with an outstanding track record of shareholder value creation, entrepreneurial management and a proven ability to spot valuable opportunities and capitalise on them. Our industry landscape is evolving ever faster. Sources of supply are diverging from traditional mining regions to more complex and disparate locations, with a range of new industry participants seeking access to markets. At the same time, demand growth has shifted from Europe, Japan and the US, to emerging Asian economies. The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage. Glencore Xstrata would be well positioned to do just that, creating value from resource extraction to customer sales and services, at a time when demand for our combined products continues to grow.”
Ivan Glasenberg, Glencore Chief Executive, said: “We have a fantastic opportunity to create a new powerhouse in the global commodities industry. The merged company will be the most diverse major resource group, combining two complementary project portfolios and pipelines with the best commodities marketing business in the world.”
The combined company would be: the fourth largest global diversified natural resource company; a major producer and marketer of 18 commodities; a global leader in export thermal coal, ferrochrome and integrated zinc production; the third largest producer of copper growing into the largest independent producer within four years; and fourth largest producer of nickel. The combination would have operations and projects in 33 countries with 101 mines and over 50 metallurgical facilities and offices in 40 countries with approximately 130,000 employees.
On a managed basis, Xstrata Coal is currently the world’s largest exporter of bituminous thermal coal and a significant producer of premium hard coking and semi-soft coking coal. Xstrata Coal has interests in over 30 operating coal mines in Australia, South Africa and Colombia and exploration projects in Nova Scotia and British Columbia, Canada. Xstrata Coal has world-class coal development projects in Australia and also manages Xstrata’s growing iron ore business.