Industry observers said the merger would in the medium term give “Glenxstrata” the financial firepower to bid for rivals, such as Anglo American and ENRC, or oil and agriculture groups.
“The deal would give both companies the fire power to go big,” said a person familiar with the merger discussions. “The companies would be able to do any deal they want,” the person added.
In order to overcome resistance from Xstrata, Mr Glasenberg is prepared to accept the role of deputy chief executive of the combined entity, with Mick Davis, his counterpart at Xstrata, becoming the new chief executive, people familiar with that talks said.
Both men have reputations as uncompromising executives who have gone from being school friends in South Africa to formidable business rivals.
Mr Glasenberg, 55, and Mr Davis, 52, have yet to agree on a new chairman, although Xstrata’s Sir John Bond is in the lead. Both companies plan to merge their boards and Xstrata could end up with the lion’s share of the senior management roles.
Mr Davis would reap millions in shares in the newly merged venture from long-term incentive plans for 2010 and 2011. The value of the award will depend on the share price, but at Thursday’s price for Xstrata shares would be worth about £5m.
The stock market welcomed the deal with both companies’ share prices rising strongly on Thursday. Xstrata climbed 9.9 per cent, while Glencore rose 6.9 per cent. But the “merger of equals”, as both companies described it, would face resistance from some shareholders at Xstrata, who believe Glencore, which already owns a 34 per cent stake in the miner, should pay a premium for control.
The trading house could offer a “small” premium to secure the deal, according to people familiar with the conversations. Over the last six months, Xstrata’s shares have traded on average at a level of 2.44 times those of Glencore. That implies that if the trading house were to offer a near-10 per cent premium to that average, Xstrata’s shareholders could receive 2.7 Glencore shares for each share they hold. At Thursday’s close, the share ratio was at a level of 2.66 times.
Mr Glasenberg told the Financial Times last year ahead of the IPO that combining the two companies made strategic sense. “We believe there is good value in the two companies being together,” he said at the time.
“Why has that not happened? It is a value debate. Xstrata … seems more comfortable for Glencore to go public and get a market price before they may or may not enter into discussions,” he added.
Mr Glasenberg argued that having the flow of Xstrata’s commodities production within Glencore’s trading operations was “advantageous” to both companies. “There are a lot of benefits and synergies to put the two companies together,” he said.
Xstrata is being advised by JPMorgan, Deutsche Bank, Goldman Sachs and Nomura. Morgan Stanley and Citigroup are advising Glencore. Linklaters and Freshfields are providing legal advice.