Xstrata, Glencore Merger Could Impact Commodities Investors

A mega-merger between two overseas companies could make waves in the global commodities market.

Xstrata (XTA.L), the world’s fourth-largest diversified miner, is merging with Glencore International (GLEN.L), the Swiss company that is the largest diversified commodities trading house in the world, to form a $90 billion commodities giant. The deal was announced earlier today.

While “merger” is the term the two companies are using, it’s really an acquisition. Glencore already owns a 34% stake in Xstrata, and is gobbling up the remaining 66% for $41 billion. The new company will be called Glencore Xstrata International, and Xstrata investors will receive 2.8 Glencore shares for every share they own.

The new Glencore Xstrata stock will be traded on the London and Hong Kong exchanges.

This is thought to be the first-ever merger between a major mining company and a large commodities trader. According to The Wall Street Journal, the new company will generate $200 billion in annual sales from operations on five continents.

The group would control roughly 30% of the world’s thermal coal market, 25% of the global zinc market, and 10-15% of the copper, lead and ferrochrome markets, used primarily for making steel.

It’s not a completely done deal yet. Pushback from the two companies’ shareholders, namely Xstrata’s, could throw a wrench into the merger. Several prominent Xstrata shareholders have publicly stated their intentions to vote against the proposed deal. The merger requires that 75% of the two companies’ shareholders sign off on it.

Antitrust regulators may also oppose the deal, given how much of the commodities market the new company will suddenly control.

With a $90 billion worth, Glencore Xstrata will enter the same stratosphere as global mining behemoths such as BHP Billiton and Rio Tinto.