Glencore and Xstrata’s Merger Delayed over the PriceIntroduction The all-share merger between the commodities trader, Glencore International plc (Glencore) and mining group, Xstrata plc aims at creating a powerhouse in the industrial and mining sector. It is under the Companies Act 2006, part 26 (the “merger”). Glencore is a premier commodities marketer while Xstrata is a world-class metal and mining assets operator. Glencore gives the following explanations as the major reasons for the merger It is the logical step that transforms both businesses into a natural resources superior major: This is because both businesses’ track record of value and growth has been proven over time.
For instance, Xstrata equity value at its creation in 2001 was $500 million. It has grown that value to about $59 by February 2012. Similarly, Glencore’s equity value was $1.2 billion when it underwent management buy-out in 1994. It has grown it to $50 billion by February 2012. A unique business model integrated along the value chain to capture value in an evolving competitive landscape: Glencore is the world commodities’ trader and marketer while Xstrata has an established industrial mining and metal assets.
The combination of these two will ensure value in every stage in the commodities. The merger is positioned to respond to changing industry dynamicsTo maximize effectiveness through governance: The new governance and management is expected to remain intact for two years after the merger is effected. (Glencore 2012, online)The Merger Process The merger is to be affected through a scheme of arrangement by Xstrata that will have to be sanctioned by a court under part 26 of the UK companies Act.
This will result to Glencore acquiring the entire Xstrata’s ordinary share capital (issued and to be issued). The Scheme document together with the Forms of Proxy contains the conditions and full terms of the merger plus details of how to vote. Xstrata prepared the scheme of arrangement and distributed it to its shareholders. Glencore prepared a circular and distributed it to its shareholders. This merger process has gone through the process of coming up with the idea and acquisition justification. It is yet to get to the integration and results phases. It has only undergone the pre-combination stages and it starting the combination stage.
With the EU approval it is ready to move to the post combination stages The merger process started in 2011 through the initiative of the CEO of Glencore Ivan Glasenberg and the CEO of Xstrata, Mark Davis. However it did not become public knowledge until February 2012. On 7 February 2012, the recommended All-Share Merger between Glencore and Xstrata was announced. Later the timing update was given on 13 April 2012. On 31 May 2012, Glencore announced the publication of documents that were needed for the merger.
The supplementary prospectus was issued on 12 July 2012. Glencore’s prospectus and circular to be sent to Glencore shareholders was approved by the UK Listing Authority on 31 May 2012.In June 2012, the turn of events changed when Qatar Holding said it will not support the deal unless additional shares were added. This resulted to Glencore revising the deal and issuing a second proposal. Glencore made the second proposal increasing the merger ratio 3.05 shares for each Xstrata share.
Although Mick Davis would have become the CEO of the combined group for at least three years, the new proposal provided that he would step down within six months after which Ivan Glasenberg would take over. The revising of the deal delayed the process as Xstrata shareholders needed more time to consider the deal. This was followed by the voting process.