Xstrata and Glencore merger talks fail to lift FTSE

Greek fears were pushed off centre stage on Thursday for some rare mega mergers and acquisitions action, with mining company Xstrata (XTA.L) and commodities trader Glencore (GLEN.L) confirming speculation that they are discussing a ‘merger of equals’.

A resulting mining sector rally failed to lift the FTSE, however, with a flat finish to the day at 5,796.

According to news reports, a deal between the two Switzerland-headquartered companies could be announced as soon as early next week, and may value the combined group at £52 billion. Citywire Top Stock Xstrata (which is already 34% owned by Glencore) confirmed the speculation with a statement, saying it has 'received an approach from and is in discussions with Glencore International plc regarding an all share merger of equals which may or may not lead to an offer being made by Glencore for Xstrata. There can be no certainty that any offer will be made.’

Xstrata shares ended the day up 111p or 9.9% at £12.30, while its potential partner, Glencore, was 29.9p or 6.9% higher to 458.6p. 

The deal is expected to change the shape of the mining industry, and could potentially prompt further mergers as competitors scramble to compete with what would be the biggest company in the sector.

Vedanta Resources (VED.L) and Anglo American (AAL.L) were among the extraction companies following in Xstrata’s slipstream, climbing 5.7% to £13.23 and 3.57% to £28.16 respectively.

Markets around the world were also helped by data showing a decline in US jobless claims, as well as comments from US Fed chairman Ben Bernanke that the economy was showing signs of improvement, albeit still vulnerable to shocks.

Further support came from Chinese premier Wen Jiabao, who stoked hopes of China contributing to eurozone bailout funds by saying that the country was considering getting ‘more deeply involved’ in helping Europe fix its debt crisis.

Investors are now awaiting tomorrow’s major US jobs report, while negotiations are ongoing for a deal between Greece and its creditors.