The completion of the $76 billion merger yesterday between Glencore International plc and Xstrata plc created a new company called Glencore Xstrata plc with 190,000 employees scattered in 50 countries. One of the first items of business for the new company is make good on its promise of realizing operational “synergies” of $500 million.
Glencore Xstrata CEO Ivan Glasenberg told The Wall Street Journal that he has found widespread duplication of some tasks and that he expects to fire a “big amount” of Xstrata’s middle managers. Of the 17 top management positions at Glencore Xstrata only 2 are filled by former Xstrata managers — one in coal and one in iron ore.
According to a new presentation, the new company will close Xstrata corporate headquarters in Zug, Switzerland, and in London, and expects to “comfortably” meet its $500 million synergies savings.
More savings are expected as the new company’s major capex commitments cease in 2015, as Xstrata projects for 2013 and 2014 reach their end. Glencore Xstrata may also divest the Las Bambas copper project in Peru which was inherited with Xstrata and is slated for another $3 billion in capital spending through 2014.
Another interesting note in Glasenberg’s interview with the WSJ is that he called the merger “a big play on coal,” and said, “To really screw this up, the coal price has really got to tank.” A big bet on coal at this particular time is, at best, counterintuitive, but except for a one-third stake in a working Colombian mine, all the rest of the company’s working mines are in Australia or South Africa. Projects in Canada could be scrapped.
Coal made up 25% of Glencore Xstrata’s proforma earnings as measured by 2012 EBIT. Copper accounts for 33% or earnings and zinc provides 15%. Trading in metals raked in 17% of earnings, while energy and agricultural commodities trading brought in 5% each.
On the revenue side, based on 2012 proforma calculations, Glencore Xstrata’s trading activities accounted for $189.71 billion in revenues and industrial activities contributed $46.75 billion. Getting those numbers up could be difficult this year with commodities prices softening on just about every mineral and grain you could name. Cutting costs will help Glencore Xstrata, but it’s not a long-term fix.
The Glencore Xstrata presentation is available here.