View the article online at http://citywire.co.uk/money/article/a612767
Glencore holds on for Xstrata deal as profits plummet
Commodities giant's earnings fall 26% in first half but company remains committed to terms of Xstrata deal despite shareholder pressure.
Its first-half net income before significant items fell to $1.81 billion (£1.15 billion), down 26% from $2.44 billion (£1.55 billion) in the same period last year.
However, the shares rose 0.55p, or 0.2%, to 354p as earnings came in at the upper end of analysts’ estimates.
Christopher LaFemina, analyst at Jeffries, commented: ‘The much better than expected results strengthen the Glencore investment case. Glencore is not immune from the difficult combination of falling commodity prices and rising operating costs in the mining industry, as its industrial assets and its 34% stake in Xstrata have historically accounted for as much as 70% of its total earnings before interest and taxes.’
Glencore said it remains committed to the terms of its $30 billion (£19 billion) offer for Xstrata, of which it is the biggest shareholder with a 34% stake.
The stronger-than-expected results could mean the deal is more likely to go ahead. LaFemina continues: ‘It is noteworthy that Glencore's industrial segment reported a smaller 2012 first-half decline (21%) in earnings before interest and taxes than Xstrata, down 43% year on year.’
Xstrata deal on the rocks?
The Glencore-Xstrata tie-up has come under intense pressure from Xstrata shareholders.
Glencore has offered 2.8 new shares for each Xstrata share, but Qatar Holding, the second largest investor in the company, has called for a better offer with a ratio of 3.25 new shares.
Qatar Holding has an 11.3% holding in the miner and could single-handedly block the deal.
With the release of the results Ivan Glasenberg, chief executive of Glencore, said the merger was ‘not a must-do deal’ and he ‘cannot understand’ the demands for more from Glencore as the weakness in the commodity market has made the offer even more attractive.
Xstrata made the biggest losses on the FTSE 100 this morning, down 3.9p, or 0.43%, to 904p.
LaFemina added: ‘Glencore did not change the terms of its proposed merger with Xstrata today. Public comments from Glencore management have recently indicated that the company is not overly concerned about the risk that Xstrata's 11.3% shareholder Qatar Holdings may vote against the merger.
News sponsored by:
Here at BlackRock, we help investors make more out of commodities with a range of innovative, flexible and resilient investment strategies.
From Brazil and Mexico, to Vietnam and Nigeria, the rapidly developing economies of Latin American and frontier markets, which are some of the smaller, less developed economies in the world, provides investors with a wealth of potential opportunities. Discover why BlackRock's investment trust range is well placed to help you make more of these exciting regions.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
Look up the funds
Look up the shares
Look up the fund managers
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add email@example.com to your safe senders list so we don't get junked.