Glencore and Xstrata Shareholders Approve Merger

The approved deal sees Glencore getting Xstrata at a good price

Elizabeth Collins, CFA 20 November, 2012 | 5:07PM
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On Tuesday, Glencore International (GLEN) and Xstrata (XTA) shareholders voted their approval of the companies' merger. We are not changing our fair value estimates of 330p for Glencore and 1,000p for Xstrata, which incorporate the deal closing at the exchange ratio of 3.05 Glencore shares for each Xstrata share.

Our valuation of the combined entity incorporates $300 million-worth of annual synergies, compared with the $500 million target expressed by management. While we'd grant that giving Glencore's talented traders access to Xstrata's mine output has ample synergy potential, we'd caution against too much optimism. If Glencore were already offering the best terms to Xstrata for certain commodities, it would already be marketing those volumes on Xstrata's behalf. But it isn't, which implies Xstrata currently receives a better deal elsewhere in most cases.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Glencore PLC436.45 GBX0.70Rating

About Author

Elizabeth Collins, CFA  is an associate director of equity research with Morningstar.

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