Glencore and Xstrata resume talks on possible £60bn ‘super-merger’

Glencore is already Xstrata’s largest shareholders with a stake of 34 per cent and a tie-up between the two Swiss-headquartered companies – in a deal which would trump Rio Tinto’s £24 billion acquisition of Alcan in 2007 – has long been expected.

That could create a combined group worth more than £60bn and in the top ten largest quoted companies on the FTSE100.

Both sides said there was no certainty an offer would be made and the deal was described as an all-share “merger of equals”, which would imply a friendly deal.

Under UK rules, Glencore now has 28 days to make an offer, although that could be extended at Xstrata’s request.

Shares in both companies posted strong gains following the announcement, with Xstrata rising 9.9 per cent, or 111p, to 1230.5p which values the company at £36bn.

Glencore rose 6.9 per cent to 461.7p, valuing it at £31bn.

Any agreement will hinge on the relationship between the ambitious South African bosses of both companies – Glencore’s Ivan Glasenberg and Mick Davis at Xstrata.

While the two groups have held on-off talks over years, speculation over a tie-up accelerated with Glencore’s bumper listing last May, which handed Glasenberg the currency to be able to deals. The listing also allowed the market to put a value on Glencore – a key demand among Xstrata shareholders.

Glencore, a trader of metals, minerals and oil and which also has assets including mines and farmland, said at the time that the motivation behind going public after almost four decades as a private company was to seize acquisition opportunities.

But so far its activities have been limited to buying a minority stake in Australian nickel producer Minara and seeking control of South African coal miner Optimum.

Analyst Tim Dudley at Collins Stewart: “These two companies were expected to merge and this is obviously a little bit faster than we had anticipated, but it makes sense given how the companies have performed and the current market positions.”

Glencore shares have fallen almost 17 per cent since its listing, but have still outperformed the drop in Xstrata.

“This confirms why Glencore went public. They needed the capital to buy other companies,” said Ion-Marc Valahu, a fund manager at Geneva-based ClairInvest.

The two sides have little overlap in mining, meaning a combined “Glen-strata” entity would get synergies from some areas of marketing but would otherwise combine industrial and operational assets to create a giant presence in copper and coal, among other commodities.

Xstrata is being advised by Nomura and Goldman Sachs alongside JP Morgan and Deutsche, the company’s corporate brokers, with total adviser fees if a deal does materialise estimated at around £90m.