Glencore / Xstrata: playing Aida's triumphal march on top of the Everest

The objective of this case study is to analyze the negotiations of the exchange ratio in a stock-for-stock merger transaction. It requires practical application of the most widely used company valuation methodologies (discounted cash flow analysis, peer companies multiples and comparable transactions analysis) in order to identify a range of mutually acceptable exchange ratios. Moreover, this case study requires students to carry out a critical assessment of the implied bid premium. The analysis is focused on the complex negotiations of the scheme of arrangement (merger) between commodity trader giant Glencore and diversified miner Xstrata. This case study offers two different, but complementary, perspectives: that of a decision maker/advisor who must assess whether the proposed terms of the merger are fair and/or propose new terms; and that of a hedge fund manager implementing a merger arbitrage investment strategy who is thus interested in understanding the likelihood of success of the deal. The case requires knowledge of basic valuation methodologies together with the ability to identify the strategic synergies resulting from the integration. Also, the case requires an understanding of how the bid premium determines the distribution of synergies between the parties in all-stock transactions