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Mining merger signals return of the megadeal

The London-listed mining behemoths Xstrata and Glencore are to stage a £50bn merger, raising hopes that the market for corporate megadeals could at last be recovering.

Facebook's $100bn (£63bn) flotation plans, and last week's $5.7bn bid for Illumina by the pharmaceuticals giant Roche had already encouraged City dealmakers. Mark Pacitti, a corporate finance partner at Deloitte, said: "With Roche, then Facebook, and now Xstrata and Glencore, we have three big deals in a matter of days. This is an indicator we could see increased deal activity in 2012."

Glencore, the commodities trader, and the mining giant Xstrata are considering an "all-share merger of equals which may or may not lead to an offer being made". Mick Davies, head of Xstrata, would become chief executive of the combined group; Ivan Glasenberg, Glencore's billionaire head, would be his deputy. The deal would add massively to Glencore's control of mining assets across the world, expanding the empires of its secretive commodities trading heads, such as Tor Peterson and Daniel Mate.

Under the UK's "put up or shut up" rules, Glencore has until 1 March to make a formal offer or walk away. Mr Glasenberg has been pushing for a deal with Xstrata for years. Last May Glencore, based in Switzerland, became the first company in 25 years to be fast-tracked into the FTSE 100 index in London's biggest flotation. It already has a 34 per cent stake in Xstrata. Xstrata is also listed in London and based close to Glencore.

Glencore is the world's largest commodities trader, controlling 32 per cent of the internationally traded market for thermal coal, used to fire power stations, and with a large presence in products including oil, gold and foodstuffs. However, the combined group would be overwhelmingly a mining company, with commodities trading accounting for only 19 per cent of its 2011 profits, according to an analysis by Credit Suisse.

Glencore helped create Xstrata, selling it coal assets in 2001 to boost the fledgling miner's operations.