Hold On to ‘Glenstrata’ Stock: Equity Pro
Growth prospects for the merger between Glencore and Xstrata look healthy enough for shareholders to hold on to their stake, according to Jane Coffey, head of equities at Royal London Asset Management.
On Tuesday, Glencore and Xstrata agreed an all-share merger worth $90 billion to create a commodities giant covering agriculture, mining and trading.
The new entity has already been dubbed 'Glenstrata' by the markets.
“It’s one of the best production profiles out of all the mining companies that are out there. We are looking at 11 percent compound annual growth for the next four of five years. It is certainly not expensively valued,” Coffey told CNBC.
Last week, European competition commissioner Joaquin Almunia successfully blocked the high-profile merger between the exchanges Deutsche Boerse and NYSE Euronext, citing monopoly concerns.
Glencore already owns 34 percent of Xstrata so this deal is not expected to provoke such a high profile interrogation.
“The competition authorities have always looked at Glencore and Xstrata as one entity anyway. I think it actually makes for a cleaner set up anyway, having the companies merge,” said Coffey.
Identified synergies for the deal are valued at $500 million.
However, Coffey believes the bigger bonus is the ability to do even more M&A activity.
“Primarily the deal is so they are big enough to do even bigger acquisitions. Perhaps not within the next few months but certainly within a couple of years and there is always Anglo American that Xstrata has always wanted to buy,” she said.
Standard Life and Schroders, two top shareholders in Xstrata, said on Tuesday they would vote against the merger, which Standard Life believes undervalues Xstrata's assets and earnings potential.