Glencore, Xstrata in Largest Mining Merger; UBS Net Plunges 76%

Arthi Gupta
07 Feb, 2012
New York City

European markets edged lower after Greece sold

[R]2:30 PM Frankfurt – European markets edged lower after Greece sold €812.5 million of 6-month bills at lower yields. Glencore and Xstrata reached an agreement to create a $90 billion natural resources group. ArcelorMittal quarterly loss widened.[/R]

European markets traded lower on the ongoing debt crisis and Greece’s inability to reach a consensus on its austerity measures program, a pre-condition for securing a second bailout package worth €130 billion from the troika.

The country was under intense pressure after French President Sarkozy and German Chancellor Angela Merkel in a joint interview with ""France 2"" television warned the Greek politicians needed to come to a resolution soon as time was running out. Greece is on the verge of a default if it is unable to repay €14.5 billion in bonds on March 20.

EU officials have set February 15 as the deadline for the approval of austerity measures. However Greek political parties are at odds in agreeing to labor reforms demanded by the troika. At least three separate strikes were called in Athens today and most of the transportation network was grounded to a halt.

In Paris trading, the CAC-40 Index declined 20.49 or 0.6% to 3,384.85 and in Frankfurt the DAX Index edged lower 72.43 or 1.1% to 6,692.39.

The yield on the benchmark 10-year Italian bond rose 10 basis points to 5.77%, while the corresponding Spanish bond yield rose 5 basis points to 5% yesterday.

Fitch Ratings downgraded the debt ratings of Italian banking groups Banca Monte dei Paschi di Siena SpA and Banco Popolare SC.

Greek Debt Auction

The Greek debt agency PDMA sold €812.5 million of 26-week Treasury bills at an average yield of 4.86% compared with 4.90% in the previous auction on January 10. The bid-to-cover ratio fell to 2.72 from 2.80 in the last auction.

The sale attracted bids totaling €1.701 billion.

German Production Falls

German industrial production declined 2.9% in December, from November, when it remained flat, data from the Federal Ministry of Economy and Technology showed today.

Glencore and Xstrata Confirm Agreement

Switzerland based Glencore International agreed to acquire London listed Xstrata for £39.1 billion in the largest mining industry merger.

Glencore valued the Xstrata at 1,290 pence a share and it will control 55% of the newly merged entity Glencore Xstrata International Plc. The combined entity will have $209 billion in revenues and will rival with the two largest Australian mining giants BHP Billiton and Rio Tinto.

The merger values each Xstrata share at 1,290.10 pence, representing a premium of approximately 15.2% to Xstrata’s closing share price of 1,119.50 pence on February 1, the last business day prior to the announcement by Xstrata that it was in discussions with Glencore.

Gainers & Losers

Alfa Laval AB plunged 8.3% to SEK 133.90 after the Swedish engineer reported fourth quarter net sales increased 14% to SEK 8.15 billion from SEK 7.17 billion in the comparable period last year. Net income in the quarter climbed 3.2% to SEK 928 million or SEK 2.21 per share compared with SEK 899 million or SEK 2.14 per share a year ago.

ArcelorMittal SA rose 2.1% to €16.50 after the steel producer said fourth quarter sales grew 8.5% to $22.45 billion from $20.7 billion in the same quarter last year. Net loss for the quarter widened 28.2% to $1 billion or 65 cents per share from $780 million or 51 cents per share in the previous year.

Daimler AG declined 1.9% to €44.62 and Volkswagen AG declined €2.38 to €125.82.

Imtech NV climbed 1.5% to €24.35 after the Netherlands-based technical services provider reported fiscal year 2011 revenue climbed 14% to €5.11 billion from €4.48 billion in the prior year. Net profit in the year rose 7.1% to €150.4 million compared to €140.4 million a year ago.

UBS AG dropped 1.3% to Sfr13.04 after the financial services company stated fourth quarter revenue declined 16% to Sfr5.97 billion. Net profit in the quarter plunged 76% to Sfr393 million or 10 cents per share versus Sfr1.66 billion or 43 cents per share last year.