Glencore

Smart money selling again.

European Indices are sliding following comments from EU’s Juncker that Greek PSI talks remain “ultra-difficult”, despite earlier gains following comments from the Chinese Premier considering further contributions to the EFSF and the ESM. The Basic Materials sector is outperforming others amid news of a possible merger between Glencore and Xstrata, causing shares in both companies to trade in strong positive territory ahead of the North American open Oil & Gas are one of the worst performing sectors in Europe today, with Royal Dutch Shell shares showing the biggest losses following disappointing corporate earnings. Elsewhere, S&P released a report suggesting Eurozone recession could end in late 2012, forecasting 1% GDP growth for the Eurozone in 2013, however these comments were not followed by significant European index movements. In terms of fixed income securities, Spain held a well received bond auction earlier in the session, with all three lines showing falling yields and strong bid/cover ratios.

In what could be the biggest merger news of the year, Bloomberg reports that Glencore and Xstrata could be close to a merger:

• GLENCORE SAID TO BE NEAR AGREEMENT TO COMBINE WITH XSTRATA
• GLENCORE, XSTRATA MAY ANNOUNCE DEAL AS SOON AS THIS WEEK
• COMBINED XSTRATA, GLENCORE MAY BE WORTH $82 BILLION
• GLENCORE INT'L RISES AS MUCH AS 4.6% IN HONG KONG

It is unclear if this merger will suffer the same fate as the NYSE-Deutsche Borse, but if successful it will surely have a significant impact on commodity prices across the world as yet another monopoly is formed and changes the layout of the playing field once again. More interesting will be the response by the investment banks which have recently also gotten aggressively into the commodities space.

And while everyone is focused on the charade dot com resurgence courtesy of the LinkedIn IPO mockery, which is nothing but a VWAP magnet and a tool for Goldman to set a public comp benchmark for its plethora of upcoming "social" IPOs, things are a little uglier for the biggest IPO of 2011. In just its second day of trading, Glencore has already broken its IPO price. Reuters reports: "Shares in commodities trading group Glencore fell below their issue price of 530 pence on Friday, the second day of conditional trading, as investors fretted over its valuation. The world's largest diversified commodities trader
touched a low of 519 pence in unofficial grey market trade before
closing at 524 pence, down 1.1 percent after more than 200 million
shares changed hands, underperfoming a virtually flat FTSE index and a
0.4 percent dip in the broad mining sector.  "Basically, the valuation looks a little bit rich. They worked very hard to get a favourable price and one could argue the only reason it was up yesterday was support from the sponsoring banks," said analyst Nik Stanojevic at Brewin Dolphin. "I think the market feels the same way. It wasn't as if they sold this thing really cheaply with the expectation it would go up 50 percent on the first day." Fools: they should have just packaged GLEN as a social network for commodity speculators and Glencore would have been the world's largest market cap company already..

With an IPO looming, Glencore management seems to think they can continue to deliver stellar results given substantially heightened scrutiny of its "questionable" operations and tactics. Do investors buying-into the deal really know what they're getting a piece of?