Privately-held commodity trading company Glenocore International AG and Xstrata plc, a publicly-traded mining company on the London and Swiss exchanges, are discussing a merger that would create a mining and trading group valued at about $85.4 million. In another big mining transaction, NorskHydro ASA (NYSE:NHY) has agreed to buy several aluminum and bauxite assets from Vale SA (NYSE:VALE) for $4.9 billion.
Glencore currently owns about 35% of Xstrata and in a reverse merger Glencore would become a publicly-traded company. The company’s current owners would also be required to retain a stake in Xstrata of less than 40% of the combined company’s value.
The hard part of the deal is establishing Glencore’s value to Xstrata shareholders. Glencore owns stakes in several mining operations around the world, and those are reasonably easy to put a value on. The company’s commodities trading business, the largest such operation in the world, is much more difficult to evaluate. The Financial Times noted, “[T]he scale and complexity of its trading business is unparalleled, and it is worth more than the sum of its parts.”
Glencore has a notional market value of $35 billion, using its recent $2.2 bond issue as a guide. Xstrata’s market value is about $49 billion. Becoming a public company would allow Glencore to access the public equity market, something it can’t do currently and which many think is curtailing its growth.
No firm offer has been made, and both companies are mum on details. It is expected that if an agreement is reached, the deal will not close until 2011 or 2012.
In another big mining transaction, NHA has agreed to buy several aluminum and bauxite assets from Vale for $4.9 billion. The deal involves $1.1 billion in cash and a 22% stake in NorskHydro in exchange for a 60% stake in Vale’s Paragominas bauxite plant, 57% of the world’s larges alumina refining plant, and other assets. NorskHydro has the right to acquire the remaining 40% stake in Paragominas for $400 million in two installments, one in 2013 and the other in 2015.
For its part, Vale may not increase its stake in NorskHydro above 22% and it may not sell any of the shares for at least two years after the deal closes, which is expected to be in the fourth quarter of 2010. The Norwegian government is the largest shareholder in NorskHydro and owns 43.8% of the company. This transaction will reduce its stake to about 34.5%
NorskHydro is already Europe’s largest producer of aluminum and this deal will improve its position significantly. Its shares are trading about 3.5% higher today, while Vale shares are down about 1.5%.
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