GENEVA (AP) — Commodities trader Glencore reported Tuesday an 8 percent drop in half-year profits due to falling prices and global economic weakness, and warned it would rather walk away from its proposed merger with rival Xstrata than overpay.
The Swiss-based company, which supplies raw materials such as oil, copper and wheat and owns plants, warehouses and mines, said its net profit for the January-June period fell to $2.275 billion from $2.474 billion in the comparable period of 2011. Revenue of nearly $108 billion was up 17 percent from $92 billion in the first half a year ago.
Shares in Glencore International PLC sagged most of the day but recovered to close 1.8 percent higher at 360.13 pence ($5.67) Tuesday on the London stock exchange.
The company said its drop in profits was a result of sluggishness of the global economy caused by "the European sovereign debt crisis and corresponding softening growth outlooks in many developed and emerging economies."
Added to this was a decline in average prices for many key commodities of between 14 and 28 percent, Glencore said. That was mostly offset in the first half by strong sales of metals, minerals and agriculture.
Despite the drop in profits, the company said its business model was showing "strength and resilience" thanks to its diversification, sourcing of materials, marketing and logistics. Glencore has billions of dollars spread in cash spread across 100 banks and no material refinancing planned in the next 12 months.
"Looking forward, we neither anticipate nor assume any material improvement in overall market or economic conditions in the near term," said Chief Executive Ivan Glasenberg, who owns 15 percent of the shares in Glencore. "We will continue to diligently look to our own growth pipeline and end markets to maximize performance for our shareholders.
He told reporters that the company would not pay more than it thought Anglo-Swiss mining group Xstrata PLC was worth. "If it doesn't happen, it's not the end of the world," he said.
Glencore, the world's largest publicly traded supplier of raw materials, has been trying to persuade investors of the merits of a merger with Xstrata. The all-share deal would involve Xstrata investors swapping each of their shares for 2.8 newly issued Glencore shares. A shareholder vote is scheduled for Sept. 7.
The deal, expected to be completed in the fourth quarter, will create a combined company to be called Glencore Xstrata with a market value of $90 billion. The company would control a chain of businesses from mining to refining, storage and shipping of basic commodities like coal, copper and corn.
Glencore already holds a 34 percent stake in Xstrata but cannot use its shares to vote on the deal. Qatar Holding, the government-backed investment fund, wants a higher price for its 11 percent stake in Xstrata and its position is crucial to the hopes of other Xstrata shareholders who are demanding improved terms.
The company made little mention of the deal in its statement Tuesday but did say it had incurred $1 million in selling and administrative expenses and anticipates $69 million of additional merger expenses.