Why the Glencore-Xstrata merger is alarming governments

Too big to succeed?

First it was Qatar, then South Africa followed by the EU and now China. The largest merger deal commodities history is alarming governments all over the world.

The $76 bn Glencore-Xstrata merger was first announced in February 2012. It was to be the largest corporate deal that year, but was successively held up: First there was Qatar Holdings, a shareholder of both commodities giants, who demanded a higher share price and a cap on the vast payments made to board members. To break the deadlock between Qatar and other investors, Tony Blair was roped in at the last minute to negotiate and a deal was made in November 2012.

The merger of the two Anglo-Swiss companies then had to jump through the hoops at Brussels. To meet the EU’s competition laws, Glencore, the world’s largest commodities company, had to sell its stake in the zinc trader, Nyrstar. Approval was granted in late November 2012.

South Africa was next on the list of countries to console. The state’s Competition Tribunal wanted to limit job losses that the merger would inevitably entail in the resource rich nation. Other concerns regarding coal supplies (85 per cent of South Africa’s electricity is from coal fired plants) were smoothed over and the deal was again approved in January 2013.

Deadlines were set and investors raring to go, but one last government had to be satisfied – China. Glencore and Xstrata – when merged – will control over 10 percent of the world’s copper concentrate supplies. China is the world’s largest copper consumer and this has caused the deal’s current delay – China is obviously concerned about an over-reliance on a Swiss company listed in London.  

One of the larger deals in corporate history now hangs in the balance of Mofcom (the Chinese Ministry of Commerce). Whether they will request – like the EU – that certain assets be dropped to reduce the company’s size and dominance, or flounder under pressure of the two commodity giants and approve the deal outright will set the rules for future mega-deals.

The multinational vs. nation state debate has long been a topic pursued by international relations theorists. But here reality trumps theory: A merged Glencore-Xstrata will be the world’s fourth largest diversified mining company and by far the largest commodities trader. As we have seen, the merged company will hold sway over the resources of the EU, South Africa and China, let alone numerous smaller countries. This deal, then, is critical to both the future of commodities trading and multinationals as a whole. Come May 2nd, the latest date for the merger, we could see either a stagnant deal held at ransom by the Chinese government, or a new power to be reckoned with over the world’s resources.       

Glencore. Photograph: Getty Images

Oliver Williams is an analyst at WealthInsight and writes for VRL Financial News

Photo: Getty
Show Hide image

Boris Johnson “will resign before weekend” if Theresa May defies his Brexit wishes

The Foreign Secretary is against paying permanently for single market access.

It turns out Boris Johnson’s 4,000 word piece in the Telegraph on Friday on his post-Brexit “vision” is exactly what we thought it was: a threat cushioned by patriotic fluff. Which is a good way of describing the man himself, really.

Because the same paper has just published an exclusive story that the Foreign Secretary will resign from cabinet before the weekend if Theresa May doesn’t follow his desired plan for Brexit.

He wants to put pressure on May not to follow the “EEA minus” option, which would see the UK paying the EU permanently for access to the single market and other benefits. The Telegraph reports that he “could not live with” that arrangement and would quit.

Johnson is trying to distance himself from the story, which allies are calling “nonsense” and blaming on his enemies, suggesting they’re spreading it as revenge against his Telegraph essay.

This is the problem for Johnson. His intervention was co-ordinated with the same paper, which now has an exclusive on his resignation threat. Anyone watching his mischief-making over the weekend would assume it had come from him. Then again, his enemies would know that, too.

But the Prime Minister has a bigger problem. She is about to make a set-piece speech in Florence on Friday, outlining the government’s approach to Brexit. She was planning on showing a draft to cabinet on Thursday.

Up against a Tory party and cabinet divided over how hard or soft Brexit should be, it was always going to be a difficult task. With the threat of a high-profile cabinet resignation, it will be even harder. It shines the light on ideological divisions that she hoped to push out of the way of conference season. With Brexit addressed in the Florence speech, she could have used Tory party conference to focus on domestic policy (ie. looking like a Prime Minister in control for a bit). Now, it’ll be all about the party’s divides – and leadership challengers.

Anoosh Chakelian is senior writer at the New Statesman.