James Moore: Investors better hope the 'big men' get on if Glencore and Xstrata merge

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The Independent Online

Was there a little extra steam emanating from the top of Canary Wharf's towers yesterday? Yes, there is a deal on the horizon, and not just any deal. A mega-deal of the type that has become very rare. The City is not usually all that keen on nil-premium mergers, but it cheered commodity trader Glencore's tentative plans to hook up with Xstrata, the mining company, from the rafters. The shares of both vaulted towards the top of the FTSE 100's leaderboard as bankers fell over themselves to grab a piece of the pie: "What, you can only make me joint third bookrunner? Ok, ok, anything. I'll be joint third tea-boy if you want. Just get me on that tombstone!"

With up to £90m in fees up for grabs, it's no wonder. Will shareholders, at least those unconnected to the two companies by virtue of employment in some fashion, be similarly rewarded? That's a harder question to answer in the cold light of day.

Glencore floated at the top of the market in a move widely seen as enabling its chief executive, Ivan Glasenberg and some of colleagues to cash out. It also provided the company with a valuation (the lack of which has hindered past attempts at a deal with Xstrata). Said valuation having been on the skids pretty much since the company's shares made their debut in London. Glencore faces a dilemma. The commodities boom has slowed, not least because of the slowing of the world economy and, especially, China. It is hard to see Glencore's shares recovering soon and, with its dominant position in commodity trading already entrenched, it is also hard to see where the growth is coming from.

Standard practice for companies in this position is to look for deals. Mr Glasenberg said when he floated that he was doing just that. Aggressively.

The two companies have actually been flirting for some time. Glencore already owns a big chunk of Xstrata and was instrumental in its creation about a decade ago when Xstrata's boss, Mick Davis, bought Glencore's coal mining business. The latter handles a lot of Xstrata's products and still has mines of its own that Xstrata might make a better fist of managing.

Trouble is, who's going to run the show? Mr Glasenberg or Mick the miner. They know each other well and their headquarters are only a couple of miles apart in Switzerland.

In more normal mergers one boss stays, one goes, his pockets laden with pay off. That can't happen here. But accommodating two such "big men" won't be easy. Whatever their titles, you will end up with co-chief executives. The City has its eyes on the numbers, gushing about the cost synergies of up to $700m (£442.4m) a year and the prospect of the creation of a predatory giant to frighten the life out of competitors. The prospect of the two bosses not getting on ought to frighten the life out of shareholders.