LONDON Given the tight stipulations set out by Chinese
and Western regulators, the merger of Glencore International
Plc and Xstrata Plc is unlikely to result in an amorphous
ravenous beast, as often described in the mainstream media,
swallowing up companies and assets at will. So what next for
newly merged GlencoreXstrata?
Ever since the merger of the Swiss companies was first mooted,
the suggestion has been that the new entity would continue to
be acquisitive. The completion of the merger this week was
immediately followed by suggestions that the company would look
to take over Anglo American Plc.
But the restraints set out by the Chinese Ministry of Commerce,
as well as the European Commission and South African
authorities, mean GlencoreXstrata is likely to be extremely
discerning in choosing new targets.
Having taken almost 18 months to get to this stage, taking on
smaller, simpler assets would be less likely to generate
controversy and complex integrations.
In a climate of divestment and disposal, there may be a number
of potential targets, especially if Xstratas Las Bambas
copper project in Peru is sold (
amm.com, April 16
), as the proceeds would go a
long way towards supporting the merged companys potential
plans. This means it is perhaps unlikely that GlencoreXstrata
will look to take on major targets, such as Anglo American,
Analysts have suggested that, with all the complications
surrounding Anglo Platinum (Amplats)or, indeed, any other
platinum group metal asseta move for Anglo would perhaps
be unwise, as the unrest among mine workers in South Africa has
yet to subside fully, and costs remain high.
Some have said that the issues that dogged Cynthia
Carrolls tenure as chief executive officer at Anglo
American would need to be resolved before Glencore-Xstrata
could consider making advances for Anglo.
On the other hand, others have mooted the possibility that
because of the merged companys scale, as well as its
experience in South Africa, it may be better equipped to take
on the challenges associated with Anglo than any other
potential suitor. And Anglo is valued mainly on the basis of
its impressive international portfolio, excluding South Africa,
access to which would no doubt be attractive.
As Rio Tinto Plc continues its program of divesting its
aluminum assets, it is possible that GlencoreXstrata could snap
up reasonably priced smelters, especially as demand from China
and other emerging economies for the light metal continues to
Given Rios major writedowns in 2012, GlencoreXstrata
would be in a strong position to negotiate with the diversified
miner, perhaps even for other assets in its portfolio.
It also has been suggested that GlencoreXstrata could set its
sights on some of BHP Billiton Plcs projects as the
latter trims and reshapes its portfolio, potentially putting
about 10 non-core assets on the block.
Following Glencores acquisition of Vales European
ferromanganese operations last year (
amm.com, Oct. 4
), the merger also could look to
build on this with further deals in the alloys sector.
Cost control will continue to be a key theme for chief
executive officer Ivan Glasenberg and his deputies. The merged
company is expected to focus on keeping operational spending
down, while pushing up production and trading volumes to
mitigate the effects of volatile commodity prices. Base metal
prices in particular have seen peaks and troughs in the past 12
to 18 months, and will require continuous attention to offset
the pressure they are likely to put on the business.
All eyes will be on Glasenberg as the sector awaits his next
move, but of equal importance will be the actions of chief
financial officer Steven Kalmin.
Kalmin spoke of ample funding being available after
Glencore signed agreements for $12.8 billion in revolving
credit facilities in April, but during Glencores results
presentation for 2012 he also noted a 48-percent drop in metals
and minerals adjusted earnings before interest and taxation,
citing specifically the fall in nickel, copper and zinc prices.