Glencore and Xstrata Merger: Game Changer?
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Glencore and Xstrata: Likely Position after Merger
Both the companies had attempted to merge several times but had failed. However, they finally decided to merge in 2007, with both of them agreeing to the terms of valuation, but the deal was once again abandoned due to some problem. The unsuccessful attempt had an adverse affect on the companies’ relations, with both clashing over issues several times. In 2008, Glasenberg blocked Vale's attempt to acquire Xstrata...
Industry analysts, market-observers, and economists anticipated that the merger would generate tremendous synergies. In a report to investors, Moody's Investors Service said, "A merger would create a "mining and trading powerhouse" that would be credit-positive for both companies, particularly Glencore. Xstrata currently has less debt and is more cash-generative than Glencore because mining is a higher-margin business than trading."...
After completion of the merger, the combined firm would consolidate its position in the mining industry. It would likely to expand its portfolio in the iron-ore segment, a highly profitable business. Further, the combined company could attempt to acquire other iron ore producing companies, due to becoming stronger financially after the merger and could raise a debt to make further acquisitions. Vale, BHP Billiton, and Rio Tinto were known as the “big three” companies in the iron ore segment, capturing approximately 70% market of the global seaborne iron ore trade...
Exhibit I: Glencore's Consolidated Income Statement
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