Abu Dhabi in for a slice of world's biggest mining takeover bid

Glencore International, the global commodities supplier that counts Abu Dhabi's Aabar among its key investors, has agreed to buy Xstrata for £39.1 billion in the world's biggest mining takeover.

Glencore International, the global commodities supplier that counts Abu Dhabi's Aabar among its key investors, has agreed to buy Xstrata for £39.1 billion in the biggest mining takeover.

Glencore International, the world's largest publicly traded commodities supplier that counts Abu Dhabi's Aabar Investments as its largest cornerstone investor, has agreed to buy copper and zinc giant Xstrata for £39.1 billion pounds (Dh227.7 billion) in the world's biggest mining takeover.

Glencore, which has 34 per cent of Xstrata, offered 2.8 new shares for each Xstrata share in an agreed all-share "merger of equals," the companies said in a joint statement today. Xstrata Chief Executive Officer Mick Davis, 53, will take the position of CEO of the combined group while Glencore CEO Ivan Glasenberg, 55, will be deputy CEO and president.

Approval for the plan would create a entity with 2012 sales of $209 billion, the companies said, combining Glencore's global trading network for energy, metals and farming products with the Zug, Switzerland-based coal, copper and zinc mine operator. The deal has prompted speculation of further mining takeovers as Glasenberg and Davis set up company to challenge BHP Billiton and Rio Tinto Group.

"This looks like it's going to be a comprehensive new business model," said Ian Kramer, director of energy and natural resources at KPMG. "I would not be surprised at all if you see this new giant coming in and sweeping up" other companies, Kramer said in an interview at the Mining Indaba in Cape Town.

Xstrata shareholders other than Baar, Switzerland-based Glencore will hold 45 per cent in the combined entity, to be known as Glencore Xstrata International Plc, the companies said. The merger values each Xstrata share at 1,290.10 pence and the company at about 39.1 billion pounds.

The price is a premium of about 15.2 per cent to Xstrata's February 1 share price and 27.9 per cent to the average in the previous three months. Xstrata Chief Financial Officer Trevor Reid will fill the role for the new company, Glencore CFO Steven Kalmin his deputy.

The combination forms a $90 billion natural resources group, full integrated from mining, processing, storage, freight and logistics to marketing and sales, the companies said.

Glencore, the copper-to-cotton trader owns mines, plants, ports and warehouses and employs 2,800 people at marketing units in 40 nations and about 54,800 at industrial units in more than 30 countries. Its oil shipping fleet comprises 203 vessels, according to a 2010 sustainability report that describes Glencore as among the world's leading suppliers of sugar.

Xstrata was founded as Sudelektra in 1926. The Swiss infrastructure investment company was renamed Xstrata in 1999, and Davis became CEO in 2001.

Since then, Davis has overseen its growth from a company with 2,500 staff and a market value of $500 million to one with 70,000 employees in 20 countries and a value of $58 billion. It is the fourth-biggest copper producer and mines more zinc ore than any other.

The combined business would operate mines from Australia to Zambia and be the world's biggest producer of zinc, lead and thermal coal and a top-five supplier of copper and nickel, according to UBS.

The premium on the deal compares with the 23 per cent average premium paid in 2011 mining deals, according to data compiled by Bloomberg.

Rising commodity demand from developing nations and the deteriorating quality of mineral reserves is spurring producers to combine and boost efficiency. Global mining deals swelled to $98 billion last year, the highest level since 2007, from $76 billion in 2010, according to data compiled by Bloomberg.

Mining companies may spend $134 billion developing assets this year, up 23 per cent from 2010, according to a report last month by Citigroup.

The combination would reunite two groups that separated a decade ago when Xstrata bought Glencore's Australian and South African coal mines for $2.5 billion and went public in London. It would also unite their two South African CEOs in Davis and Glasenberg, Glencore's largest shareholder with a 15.7 per cent stake.

Glasenberg said in August that Glencore is "aggressively" seeking mergers and acquisitions as market valuations slide. The former coal trader is also an Australian national and is that country's second-richest person, with an estimated net worth of $7.2 billion, Forbes Magazine said last week. Gina Rinehart, the Australian mining heiress and media investor, is the richest, valued at $18 billion.

Glencore is working with Citigroup Inc. and Morgan Stanley as financial advisers, while Xstrata has hired Goldman Sachs Group, JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc.

The mining industry's biggest takeover to date is Rio Tinto's 2007 acquisition of Alcan for $38 billion. BHP, the largest mining company, withdrew from what would have been the world's biggest mining deal, a $66 billion offer for Rio, in 2008. BHP has a market value of about 130 billion pounds. while Rio is valued at £77.6bn.

Combined, Xstrata and Glencore would report net income of about $11.2 billion in 2012, Credit Suisse Group AG said in October. Glencore had first-half profit of $2.5 billion, up 68 per cent on a year earlier. It may post adjusted net income of $4.4 billion for 2011, according to the average estimate of 15 analysts surveyed by Bloomberg. It's due to report earnings on March 5.

*Firat Kayakiran and Jesse Riseborough - Bloomberg News with additions from The National staff