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Return of the megadeal as miners forge £50bn merger

  • @BawdenTom

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

Following Facebook's $100bn flotation plans, and barely a week after the pharmaceuticals giant Roche bid $5.7bn for America's Illumina, yesterday's mining tie-up added to the cautious air of optimism among 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 a good indicator that we could see increased deal activity in 2012.

"The private equity guys have got a lot of capital to spend and corporate balance sheets are strong," he added.

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". Xstrata head Mick Davies would become chief executive of the combined group, with Ivan Glasenberg, Glencore's billionaire head, taking up the deputy's position.

The deal would add massively to Glencore's control of mining assets across the world, expanding the empires of its secretive commodities trading heads like 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 Swiss-headquartered Glencore became the first company in 25 years to be fast-tracked into the FTSE 100 index in London's biggest ever flotation. It already has a 34 per cent stake in Xstrata. Xstrata is also listed in London and headquartered just two miles away from Glencore in Baar.

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. It would be the world's largest producer of zinc and the third biggest producer of copper.

Glencore was instrumental in creating Xstrata, selling coal assets to it in 2001 which considerably boosted the operations of the fledgling Swiss miner.

A deal between the two would create the world's fifth largest mining firm behind BHP Billiton, Brazil's Vale, Riot Tinto and China's Shenhua Energy.