COOL Karel, DAVIRON Olivier, ALMEIDA D'EÇA Joao, MENDES Joao, VALLARDI Edoardo, WEFELNBERG Matthias
©2013 INSEAD Case Study
In 2012, Glencore, one of the world’s largest commodity traders, proposed to take over the mining company Xstrata. Stocks of both companies surged by more than 10% following the deal's announcement, lauded by analysts as unprecedented: “Glencore provides the marketing and Xstrata the operational base. It could be a new model for the industry, although it would be difficult to replicate by others.” However, the vertical integration move was contested by many shareholders, including Qatar Holding. The case chronicles the organization and economics of the copper industry and its supply chain, the different business models and competitors, and the development of Glencore till the proposed merger.
Pedagogical Objectives: The case offers an ideal setting to study various theories and determinants of vertical integration: industry life-cycle effects, transaction costs, market power/opportunistic behavior. It also illustrates the use of vertical integration for various arbitrage mechanisms. The data provided allows students to translate the strategy analysis of the possible benefits and costs of the merger into a pricing exercise for the take-over.