Glencore could have to pay more than £25bn for Xstrata

GLENCORE, the commodities trading giant, may have to pay more than £25 billion to secure a merger with Xstrata, according to research published yesterday.

Although the potential deal – which would be the biggest ever in the sector – has been billed as an all-share “merger of equals”, analysts believe Glencore will have to pay some form of premium to ensure acceptance by shareholders of the mining group. Data compiled by analysts at Bloomberg suggests that the group, which already holds 34 per cent of Xstrata, may offer as much £25.3bn worth of its stock for the rest of the shares.

The estimate is based on the companies’ share prices before the merger talks were announced this week and the 23 per cent average premium paid in mining deals last year.

Such a scenario would see Glencore needing to offer as many as three of its shares for each one in the coal and copper producer to strike a deal which would create a company valued at some £58bn based on yesterday’s closing prices.

Analysts at UBS believe Glencore may generate some £630 million in savings from the deal, allowing it to pay a 20 per cent premium based on share prices before the deal was announced.

Meanwhile, analysts predicted that the merger move could spark a wave of consolidation in the sector. Liberum analyst Dominic O’Kane said the potential deal had “reinvigorated the sector” and that the enlarged group could itself be involved in another transaction.

There has been speculation that the merged group could have mining group Anglo American in its sights if any deal through.

Shares in both companies rose yesterday with Xstrata gaining 52.5p to close at 1,283p and Glencore up by 20.85p to 482.55p.