Xstrata and Glencore to close $90bn merger

The new commodities giant will have operations around the world, including key nickel mining and refining companies in Canada, where Xstrata owns the former Falconbridge nickel company.  Glencore Xstrata International will be the fourth-largest diversified miner and the third-largest copper producer on the planet, with revenue of $209 billion and pretax profit of $16 billion, based on 2011 figures, which would put it above Rio Tinto PLC but not quite at the level of Brazilian miner Vale SA and BHP Billiton PLC.

The anticipated deal came as Xstrata announced a 20% increase in profits for 2011, drawing instant opposition from two leading shareholders, as Reuters reports.

Standard Life Investments, the fourth largest investor in Xstrata, and Schroders said the deal, the mining sector’s biggest, to buy the remaining 66 percent of Xstrata for $41 billion (25 billion pound) undervalued their shares.

Glencore also disclosed an estimate of its financial results together with the merger details. It said its net profit in 2011 rose to $4.06bn, up 7 per cent from last year, on the back of stronger metal prices and higher production, but weighed down by falling profits in trading, particularly in agricultural commodities.

“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, each with an outstanding track record of shareholder value creation, entrepreneurial management and a proven ability to spot valuable opportunities and capitalize on them,” said Xstrata CEO Mick Davis.

Both firms said they expected to close the transaction in the second half of the year. Glencore has agreed to pay a so-called “reverse break fee” of £298m (US$ 470m) to Xstrata if its board withdraws the support for the merger.