Why does Glencore’s merger with Xstrata matter?

11th September 2012

Here, the Guardian's Philip Inman offers five reasons why you should care about the merger between these mining and commodities trading giants.

In the piece, Inman argues that one reason why the merger matters is because mining ranks as one of the most corrupt industries. "Most minerals are found in developing world countries and poverty tends to influence the demands of local politicians and officials for bribes to gain planning permission an export licences." Although Inman points out, "The merged company would be the fourth largest miner in the world and as such would be in the frontline in combating corruption." Indeed, both companies say in their annual reports they will not tolerate bribery or corruption of any kind.

Meanwhile, in assessing how much power they would have, the BBC's business reporter Rebecca Marston looks at the winners and losers of a potential deal.

Marston says despite the fact that Qatar Holdings, Xstrata's key shareholder, is holding out for a better offer, shareholders should ultimately benefit from the deal because Glencore estimates that the merger would enhance profits in the first year by some $500m.

"But what's good for shareholders and executives isn't necessarily good for customers and manufacturers," she writes. "China, for example, buys a lot of commodities from Glencore and Xstrata, and may fear prices will rise. So many goods controlled by one company raises the prospect of competition investigations in territories where the companies trade."

Mining analyst John Meyer, from Fairfax Investment Bank, who has been following Glencore's and Xstrata's activities for over a decade, points out, however, that Glencore and Xstrata would not be the biggest company of its type. "BHP Billiton is much bigger, and a newly merged "Glenstrata" would stand fourth in the world." Therefore, both companies could argue that there is little for competition regulators to worry about.

Over at the Independent, Simon English extols Glencore's chief executive Ivan Glasenberg as a trading genius, a poker player par excellence for the most likely ending up with getting exactly what he wanted for less than he might reasonably expect to have paid.

"He played high-wire, winner-takes-all stakes. Insisting he was unmovable, that he'd let the whole thing collapse and walk away, then shifting apace when he absolutely had to……He left everything to the last possible minute and was entirely comfortable with engineering a huge fallout with Mick Davis, the Xstrata boss, who may have thought Mr Glasenberg was his mate."

"In others words, in the battle between the trader and the miner, the trader wins. That's the way to bet."

 

More on Mindful Money

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Glenstrata: Through a Glass Darkly

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