All eyes on Glencore and Xstrata ahead of deal
Shares in commodities bedfellows Glencore (GLEN) and Xstrata (XTA) were slightly dented on Monday amid rumours that the deal may cost more.
The ‘merger of equals’ between the giants is still being thrashed out but investors were put off by news that the final figure – in the region of $88 billion (£56 billion) - may put a higher value on Xtsrata, with its shareholders receiving 2.8 Glencore shares for each Xstrata share.
All eyes will be on the details of the tie-up when they appear in Xstrata’s annual results on Tuesday.
There is also speculation that the pair could face additional regulatory scrutiny with a report in The Daily Telegraph that the European Union’s competition Commissioner, Joaquin Almunia, may look into the transaction.
Analyst view
US investment bank Jeffries reiterated its ‘buy’ stance and upped its target price for Glencore stock from 525p to 575p, saying the merger with Xstrata represents a ‘game-changer’ for the sector.
"Based on our analysis, an exchange of three Glencore shares per Xstrata share would be earnings accretive for Glencore and Xstrata shareholders," said Christopher LaFemina, analyst at Jefferies in London.
"A smaller premium offer of 5-10% is probably coming and would likely be high enough to win over Xstrata shareholders as the strategic benefit of a merger should offset small earnings dilution (for them)."
Credit Suisse maintains an ‘outperform’ ratings for Glencore and Xtsrata with target prices of 550p and 1600p respectively.
Analysts there estimate the synergies at around $468 million, roughly 5% of combined 2012 net income, due to better use of Glencore's marketing capabilities, and rating agencies are already pointing to an improved debt profile.
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