Xstrata shares fall as Glencore ‘merger of equals’ unveiled

Shares in miner Xstrata (XTA.L) fell this morning after the miner agreed a $90 billion (£56 billion) all-share merger with commodities trader Glencore (GLEN.L), while the FTSE 100 was flat as Greek debt restructuring talks continued.

Xstrata dropped 26p to £12.36 after the group announced that Glencore, the world's biggest diversified commodities trading house, would issue 2.8 new shares for each Xstrata share. Glencore, however, rose by 5p to 466p.

In a joint statement, the groups said the ratio was a 15.2% premium to Xstrata shareholders against the miner’s share price last Wednesday before news of the merger talks emerged.

Mick Davis, the Xstrata chief executive who will become boss of the enlarged group, 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.’

And Ivan Glasenberg, Glencore chief executive, lauded the ‘fantastic opportunity’ to create a new powerhouse in the global commodities sector. ‘The merged company will be the most diverse major resource group, combining two complementary project portfolios and pipelines with the best commodities marketing business in the world,’ he said.

Despite the share price falls, Richard Knights, an analyst at Liberum Capital, pointed out that with Xstrata getting the three top jobs and a small premium, the broker failed to see how Xstrata shareholders have ‘come out poorly here’. John Bond, Xstrata chairman, and Trevor Reid, the group’s chief financial officer, will retain their positions.

Knights added: ‘They gain access to some very fast-growing assets and a world class trading platform and the shareholder tensions that have dogged the company since the failed sale to Vale in 2008 have been killed once and for all.’

Greek talks

Meanwhile, the UK index of blue chip shares edged down by 0.08%, or five points, to 5,887 and the All Share index edged down 0.1%, or three points, to 3,041. See the FTSE’s performance and the index’s top winners and losers.

Trading was restrained as Greek political leaders prepared for last-ditch talks to secure a deal in order to avoid a chaotic default, after opposing the terms of a proposed new European Union/International Monetary Fund deal that calls for a fresh batch of austerity measures.

Ulrich Leuchtmann, head of FX research at Commerzbank, said that talks over restructuring were a ‘waste of time’ while the Greek parties resisted the demands.

‘Without a new bailout package from the troika, the restructuring will not happen anyway,’ he said, referring to the European Central Bank, the European Union and the International Monetary Fund.

‘Probably the old mechanics will once again apply in all these rounds of negotiations: an agreement will be reached at the last minute as the parties involved can then demonstrate determination.’