Commodities trader Glencore agreed an all-share takeover of mining group Xstrata worth $90 billion on Tuesday in the industry's largest ever deal, creating a powerhouse spanning mining, agriculture and trading.
Glencore, the world's largest diversified commodities trading house, will issue 2.8 new shares for each Xstrata share in a deal they said was a merger of equals.
The ratio is a 15.2 percent premium to Xstrata shareholders compared with its share price last Wednesday before word leaked out about the merger talks, a joint statement said.
A merger between Glencore and Xstrata offers a unique opportunity to create a new business model in our industry to respond to a changing environment. It is the logical next step for two complementary businesses, said Xstrata chief executive Mick Davis, who will be CEO of the enlarged Glencore.
Glencore CEO Ivan Glasenberg, a billionaire who owns 15.8 percent of Glencore will be president and deputy CEO of the new company. Xstrata chairman John Bond and Chief Financial Officer Trevor Reid will retain their posts.
Xstrata shareholders other than Glencore, which already has a 34 percent stake in the mining group, will hold 45 percent of the new company, to be named Glencore Xstrata International.
Xstrata shareholders, some of whom demanded a strong sweetener over the past few days as executives hammered out details, will need to be convinced that growth prospects and synergies outweigh a minimal premium compared with takeover premiums averaging 20 percent to 30 percent in the mining sector.
Fund managers who own shares in both the groups are expected to show more support for a modest premium deal than those who hold Xstrata shares only, analysts have said.
SURGE IN DEMAND
Bringing together Xstrata, the world's fourth-biggest diversified miner, and Glencore will create a group looking to ride an extended surge in demand in coming years for commodities from China and other emerging nations.
The combined group expects synergies of at least $500 million and to be earnings accretive to Xstrata shareholders in its first full financial year.
This is a natural merger which will realize immediate and ongoing value from marketing the combined group's products to maximize arbitrage opportunities, blending, swapping and storing to meet customer needs more exactly, Glasenberg said.
As the world's biggest exporter of coal for power plants and a top copper producer, the combined firm aims to have the bulk to compete with mining sector leaders BHP Billiton, Vale and Rio Tinto.
It would have had revenues of $209 billion and adjusted core profit of $16.2 billion they had been together during 2011.
The new group, which will have mining assets from New Caledonia to the Democratic Republic of Congo, are expected to use their combined clout to look at other deals, including potentially a takeover of Anglo American, analysts say.
The deal is the largest in the mining sector since Rio Tinto's takeover of Alcan in 2007.
Xstrata shares were 1.7 percent lower, while Glencore rose 1.3 percent in early trading on Tuesday.
(Reporting by Eric Onstad; Editing by Erica Billingham)