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The companies announced the deal today (Tuesday) following Glencore's offer last week. Glencore would pay $41 billion for the rest of Xstrata's shares (Glencore already has a 34% stake).
Glencore International is the world's largest publicly traded commodities supplier, and Xstrata is the world's fourth-largest metals and mining company. A Glencore Xstrata deal would create a company rivaling global mining industry leaders BHP Billiton Ltd (NYSE ADR: BHP) and Rio Tinto Plc (NYSE ADR: RIO).
"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar from Platypus Asset Management Ltd. told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."
The new combined entity would be more diversified than other global commodities players, with copper and coal being its biggest earnings drivers. It would be the world's biggest coal exporter for power plants and the top integrated zinc producer.
The new mining industry giant also will go on the hunt for smaller businesses, and encourage other powerful players to do the same.
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As currently planned, unconditional trading will begin in London on May 24 and in Hong Kong on May 25.
In spite of all the pre-IPO hoopla, there's actually probably quite a lot that you don't know about Glencore.
If that's the case, don't worry - you're not alone: Columnists and market pundits alike routinely describe the company as "mysterious." To be sure, the Glencore story is a colorful one, and is one of those tales that seems to raise at least as many questions as it answers (For instance, billionaire founder Marc Rich once owned 50% of 20th Century Fox, spent years as a "wanted" man, and was actually pardoned by a U.S. president).
So it's no surprise at all that the Glencore IPO deal raises a whole host of new questions - these two key among them:
- Why is Glencore going public right now?
- And precisely what does the largest IPO in the history of the United Kingdom means for global commodity prices?
Now I want to show you why...