Bloomberg News

Xstrata Drop Makes Glencore Takeover ‘Win-Win’: Chart of the Day

October 26, 2011

(GRAPHIC: COD_MINING_DEAL_102611. CHART OF THE DAY. Size: 3C X 4in. (146.0 mm X 101.6 mm) Available now.)

Oct. 26 (Bloomberg) -- Xstrata Plc’s 26 percent slump this half makes a takeover by Glencore International Plc, in a deal that would be a record for the mining industry, a “win-win” for investors in both companies, Jefferies Group Inc. said.

The CHART OF THE DAY shows the market valuation of Xstrata has fallen more than Glencore, down 17 percent since June 30. Glencore would be able to pay a 55 percent premium, assuming 70 percent in stock and 30 percent in cash, before a deal would be dilutive for its shareholders, Jefferies said. That would value the largest power-station coal exporter at about $75 billion.

“A bid for Xstrata may be coming,” analysts Christopher LaFemina and Seth Rosenfeld wrote in a report Tuesday. “The economics of a Glencore acquisition of Xstrata have improved.” It “would be a ‘win/win’ as Glencore could now offer Xstrata shareholders a premium high enough for them to accept but not so high as to destroy value for Glencore shareholders.”

Glencore, the largest publicly traded commodities supplier, sold $10 billion in stock in a May initial public offering to fund growth and acquisitions. It owns 34.5 percent of Xstrata and was studying a merger to gain access to financing, two people familiar with the matter said 12 months before the IPO.

There’s “good value” in a merger with Xstrata, said Ivan Glasenberg, 54, chief executive officer of Baar, Switzerland-based Glencore, in an April interview. Credit Suisse Group AG analysts said Oct. 10 in a note the outperformance of Glencore over Xstrata since the IPO may prompt speculation of a bid.

In an all-share deal, Glencore could offer a premium of as much as 42 percent before losing gains from synergies estimated at as much as $704 million, Credit Suisse said. Such a premium would give Glencore shareholders control of 57 percent of the combined company, it said. Charles Watenphul, a spokesman for Glencore, and Xstrata’s Alison Flynn declined to comment.

--Editors: Tony Barrett, Alex Devine

-0- Oct/26/2011 16:07 GMT

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net


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