Glencore and Xstrata set for £50bn mining mega-merger

The all-share "merger of equals" would create a commodities super-giant to rank with BHP Biliton, Rio Tinto and Anglo American.

The City cheered the news, which sent both companies' shares soaring and will produce a bonanza in fees for financial and legal advisers.

It is understood that Londoner Mick Davis, chief executive of Xstrata, will become chairman of the combined group while Glencore chief executive Ivan Glasenberg will take the same role at the new group.

Davis collected £18 million in pay, bonuses and long-term share awards for 2010 and is estimated to be worth £80 million. Glasenberg is reckoned to be worth $7.2 billion (£4.5 billion) and to be the second-richest Australian, according to Forbes magazine.

The two, who have known each other for decades, had planned to announce the deal when Xstrata reports its final results next Tuesday. But they were forced to put out a statement as news of the talks leaked overnight.

Xstrata told the London Stock Exchange, where both companies are in the FTSE 100 that it "has received an approach from, and is in discussions with, Glencore International Plc regarding an all-share merger of equals which may or may not lead to an offer being made by Glencore for Xstrata".

Xstrata shares jumped 98.5p, or 9%, to 1218.5p while Glencore rose 20.3p, or 5%, to 452.1p.

Davis created Xstrata at the turn of the century when he bought Glencore's coal-mining business for $2.5 billion and floated in London. Since then, it has grown through a series of takeovers to encompass copper, nickel and zinc mines. It has a market value of £32 billion. Glencore owns 34% of Xstrata, and its flotation last year - London's largest-ever, which valued it at £35 billion - was widely seen as the first move in a plan to buy up the rest of the mining company. Glasenberg said last summer that following the share sale, he was "aggressively" looking for mergers and acquisitions.

"These two companies were expected to merge and this is obviously a little bit faster than we had anticipated, but it makes sense given how the companies have performed and the current market positions," Collins Stewart analyst Tim Dudley said.

Xstrata and Glencore are both headquartered in Switzerland, with their offices just two miles apart in Zug and Baar where their highly paid executives and traders can take advantage of the low tax regime. Glencore trades across the range of commodities from metals to foodstuffs, owns a shipping fleet and employs almost 55,000 people in 30 countries. Xstrata has mines in 18 in countries, holds a 24.9% stake in Lonmin and employs 39,000 people.