Glencore and Xstrata Merger: Game Changer?

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Case Details:

Case Code : FINC080
Case Length : 27 pages
Period : 2009-2011
Pub. Date : 2012
Teaching Note : Not Available
Organization : Glencore International AG and Xstrata Plc.
Industry : Metal and mining industry
Countries : Switzerland, US and Global

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Background Note

Glencore International AG
Glencore International AG (Glencore), originally known as Marc Rich & Co., was founded in 1974 by Marc Rich (Marc9 ) in Baar, Switzerland. Marc, who initially focused on the physical marketing of metals, minerals, and oil, sold Marc Rich & Co. in 1993 to a group of managers for $ 600 million. The same year, the group changed the company's name to Glencore, acronym for Global Energy Commodity Resources. In April 2010, Glencore, worth about US$ 60 billion, came up with an initial public offering (IPO) to raise US$ 10 billion. It was the biggest10 IPO in London and was oversubscribed 4 times. Glencore sold 1.14 billion shares at 530 pence (US$ 8.60) per share.

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After Glencore's shares were listed on the Financial Times and Stock Exchange11 (FTSE), Ivan Glasenberg,12 Chief Executive Officer at Glencore, who held 15.7% of the company's shares, said on May 19, 2010, "We welcome and look forward to building long-term mutually beneficial relationships with our new shareholders, as we have with our customers, suppliers, and capital partners over the years."13...

Xstrata Plc
Xstrata was formed in 2002, following a spin-off of Glencore's coal mining business. The company's headquarters was established in Zug, Switzerland, while its corporate office was located in London. Xstrata issued an IPO in March 2002 with an issue size of 100 million equity share at 870 pence each share. The company's shares were listed on the London Stock Exchange and the Zurich Stock Exchange. Xstrata grew rapidly by adopting aggressive business strategies that helped it expand its business in the seven commodities in about 20 countries over a period of nine years. During the nine- year period (2002-2011), the company transformed its business through a combination of incremental acquisitions, organic growth projects, and operational improvements. Xstrata’s CEO Mick Davis (Davis) played a major role in expanding the company’s business worldwide. The company recorded revenue of US$ 1.8 billion in 2002...

Excerpts - Next Page>>

9] Marc Rich, founder of Marc Rich & Co., fled from the US as a fugitive in 1984 to Switzerland. Marc was charged for illegal trading of oil with Iran in the 1980s during the hostage crisis and was also indicted for evading tax of more than US$ 48 million. In 2001, Bill Clinton, Former US President, pardoned him.
10] "The Glencore effect, The big dig", May 12, 2011.
11] Financial Times and Stock Exchange (FTSE) called footsie and founded in 1995. FTSE is owned by London Stock Exchange Group. It headquartered in London, UK.
12] Glasenberg is a South African native and Australian citizen. He hired by Marc in 1984 and became CEO of Glencore in 2002. He was named the second-richest person in Australia by Forbes Magazine on February 2, 2012. His net worth was estimated at US$ 7.2 billion.
13] Julia Werdigier, "Glencore's Shares Get Muted Reception in Market Debut,", May 19,2011.

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