By Alex MacDonald
LONDON--The chief executive of the newly merged Glencore Xstrata
(GLEN.LN) said it may take five years to determine whether
Glencore's merger with Xstrata was a success, adding that much will
depend on its integration plan and how commodity prices perform,
particularly coal.
Ivan Glasenberg, the CEO of the merged entity and its largest
shareholder, told The Wall Street Journal in an interview that he's
still concerned about whether the merger will be considered a
success.
"Did I pay the right price? Am I going to be able to jell these
things, will the commodity markets remain strong so that it will
justifies putting all of this money into an asset rich company?
It's my biggest fear." he said.
Commodities titan Glencore International PLC (GLEN.LN) and Anglo
Swiss miner Xstrata PLC (XTA.LN) announced 15 months ago plans to
merge their operations into a globally diversified natural
resources company with a market capitalization of $66 billion. The
deal has faced many twists and turns, not least in securing
shareholder and regulatory approval.
Glencore said in a statement Thursday that the merger between
the two companies is now effective and the entire issued share
capital of Xstrata is now owned by the Glencore Group.
"Not one glass of Champagne will be opened," said Mr. Glasenberg
on the day of the deal's closure. "Talk to me in five years time.
Maybe we will open a glass of Champagne" at that time.
Mr. Glasenberg said the future success of the company hinges on
commodity prices, particularly coal, which has dropped
significantly since the merger was first announced due to
slower-than-expected Chinese economic growth and the health of the
U.S. and European economies.
Mr. Glasenberg said both companies were pretty equal in terms of
zinc and copper production but Xstrata is much bigger than Glencore
in coal. The deal is "a big play on coal," he said. "To really
screw this up coal price has got to really tank. You have to look
at that," he added.
Commodity prices aside, Mr. Glasenberg said he's keen to
complete the integration of the two companies as quickly as
possible. Glencore has a 100-day integration plan that includes
removal of job duplication and head offices at Xstrata's five
business units. He expects the restructuring to take 30 days to
complete while the remaining days will be spent on extracting value
from its portfolio of assets. Mr. Glasenberg said it wasn't
possible to put a number on how many jobs might be lost but he
noted "it's going to be big."
In a letter to employees, Mr. Glasenberg said, "For the vast
majority of employees, particularly those involved in the key
front-line process of production and marketing, there should be
little impact on your day-to-day activities. Those who will be
affected within the various management structures will be notified
directly and as soon as practicable."
The corporate restructuring into a more centralized organization
will result in cost savings, Mr. Glasenberg said, but he declined
to provide a figure. He said that about 80% of the potential
synergies have already been identified but more work needs to be
done. The company plans to deliver at least $300 million in cost
savings synergies as identified by Xstrata's management's last year
and will deliver $500 million in extra Ebitda (earnings before
interest, taxes, depreciation and amortization) synergies annually
by marketing all of Xstrata's commodities through Glencore's
marketing arm, Mr. Glasenberg said.
In terms of capital expenditure, Glencore Xstrata will stick to
the combined company's committed plans until 2015 but will then
reassess its capital expenditure plans thereafter. Mr. Glasenberg
said, "I'm not a lover of greenfield" projects but he said he would
reassess their value depending on how much it would cost to keep
them in the project portfolio. "I don't want to spend a lot of
money to maintain them....If it costs too much to maintain, we may
have to sell them."
Xstrata has a raft of greenfield copper projects, including
Tampakan in the Philippines, Alumbrera or El Pachon in Argentina or
Frieda River in Papua New Guinea.
--John Miller contributed to this story
-Write to Alex MacDonald at alex.macdonald@dowjones.com
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