On Tuesday, Glencore International (GLEN) and Xstrata (XTA) shareholders voted their approval of the companies' merger. We are not changing our fair value estimates of 330p for Glencore and 1,000p for Xstrata, which incorporate the deal closing at the exchange ratio of 3.05 Glencore shares for each Xstrata share.
Our valuation of the combined entity incorporates $300 million-worth of annual synergies, compared with the $500 million target expressed by management. While we'd grant that giving Glencore's talented traders access to Xstrata's mine output has ample synergy potential, we'd caution against too much optimism. If Glencore were already offering the best terms to Xstrata for certain commodities, it would already be marketing those volumes on Xstrata's behalf. But it isn't, which implies Xstrata currently receives a better deal elsewhere in most cases.
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