February 6, 2012 / 12:12 AM / 5 years ago

Glencore offers 8 percent premium to Xstrata to seal deal: FT

4 Min Read

<p>A worker uses a mobile lift to clean the windows of the headquarters of Swiss commodities trader Glencore in Baar near Zurich April 13, 2011.Arnd Wiegmann</p>

(Reuters) - Commodities trader Glencore International (GLEN.L) is set to offer a bigger-than-expected premium to seal its proposed $88 billion merger with global miner Xstrata Plc XTA.L, the Financial Times reported on Monday.

Under the terms of the all-share deal, likely to be unveiled on Tuesday, Xstrata shareholders are set to receive 2.8 shares in Glencore for each share held, the newspaper said in an unsourced report.

The ratio -- which represents an 8 percent premium to Xstrata's share price before news of the merger talks surfaced -- was higher than had been expected by most analysts or investors, the paper said.

The deal terms could still change, it said. Each Xstrata share was valued at 2.66 times a Glencore share based on Friday's close.

"Given the volatility in the share prices since the deal was announced, I wouldn't have thought an 8 percent premium would matter much," said John Robinson, chairman of Global Mining Investments (GMI), a fund managed by BlackRock with shares in both Glencore and Xstrata.

"The key thing is the synergy that's generated. If they get the deal done, it's worth it," he said.

Xstrata shares have risen almost 11 percent since the close on Wednesday, before news of the deal was first reported.

Analysts at Credit Suisse estimate the synergies at around $468 million, roughly 5 percent of combined 2012 net income, thanks to a better use of Glencore's marketing capabilities.

Xstrata, in which Glencore already has a 34 percent stake, announced last week it had been approached by the world's largest diversified commodities trader and was in talks over an all-share "merger of equals," a deal that would be the largest in the sector since Rio Tinto's takeover of Alcan in 2007.

While the two companies have held on-off talks over years, speculation over a tie-up accelerated with Glencore's bumper $10 billion listing last May, which handed Glasenberg the currency for deals. The listing also allowed the market to put a value on Glencore -- a key demand among Xstrata shareholders.

Sources earlier told Reuters the two groups, which restarted discussions before Christmas, have reached a preliminary understanding on the structure of the combined group's top management.

Xstrata is expected to take a majority of seats on the board, and would keep its chairman, City heavyweight John Bond, as well as its chief executive, Mick Davis, and its chief financial officer, Trevor Reid.

Glencore Chief Executive Ivan Glasenberg, who will be the largest single shareholder in the combined mining and trading entity, is expected to hold a deputy position.

GMI's Robinson welcomed the prospect of Xstrata executives leading the merged group.

"Obviously they've done very well for shareholders over time. They're a very efficient management group," he said.

Xstrata has posted spectacular growth through deals, although it is now focused on organic or self-generated growth to boost production by 50 percent to 2014, with a project pipeline budget of $19.5 billion over the two years.

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

The merged entity is seen expanding into iron ore, a key gap in the profile of the combined unit, which would rank as the world's largest thermal coal exporter, the largest zinc producer and third-largest copper miner.

Iron ore offers opportunities for acquisitions as top miners BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX) face competition regulatory hurdles due to their size and have their own plans to expand into other resources.

Reporting by Narayanan Somasundaram and Sonali Paul; Editing by Mark Bendeich and Richard Pullin

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