Glencore chief ‘plays masterful hand’ in Xstrata takeover

FILE PHOTO: Ivan Glasenberg, chief executive officer of Glencore International Plc, pauses during a conference session on day two of the Saint Petersburg International Economic Forum 2012 (SPIEF) in Saint Petersburg, Russia, on Friday, June 22, 2012. Glencore International Plc raised its offer for mining company Xstrata Plc by 9 percent to overcome opposition from investors, with Glencore Chief Executive Officer Ivan Glasenberg moving to the CEO role in the combined group, reversing a plan for Xstrata�s Mick Davis to hold the position. Photographer: Simon Dawson/Bloomberg *** Local Caption *** Ivan Glasenberg

FILE PHOTO: Ivan Glasenberg, chief executive officer of Glencore International Plc, pauses during a conference session on day two of the Saint Petersburg International Economic Forum 2012 (SPIEF) in Saint Petersburg, Russia, on Friday, June 22, 2012. Glencore International Plc raised its offer for mining company Xstrata Plc by 9 percent to overcome opposition from investors, with Glencore Chief Executive Officer Ivan Glasenberg moving to the CEO role in the combined group, reversing a plan for Xstrata�s Mick Davis to hold the position. Photographer: Simon Dawson/Bloomberg *** Local Caption *** Ivan Glasenberg

Published Nov 22, 2012

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Jesse Riseborough and Firat Kayakiran

Glencore International chief executive Ivan Glasenberg navigated a nine-month takeover of Xstrata to emerge with his $31 billion (R274bn) prize, the top job and a chance of selecting the group’s new chairman.

On Tuesday Xstrata investors also prevented the payment of £144 million (R2bn) by the new company, Glencore Xstrata, as incentives for about 70 managers to remain at what will be the fourth-largest mining group.

Xstrata chairman John Bond, set for the same role in the combined firm, said he would quit after shareholders rejected his board’s call to back the bonuses.

Glasenberg “got exactly what he wanted”, Paul Gait, an analyst at Sanford C Bernstein in London, said. “He’s got control; he’s still in charge… and he’s acquired probably the best set of assets on the market.”

Xstrata shareholders voted to approve this year’s biggest takeover, combining its coal, copper, nickel and zinc mining assets with Glencore’s cotton-to-crude oil commodities trading empire. The group will represent about 2.12 percent of the UK’s benchmark FTSE 100 index, ranking 13th in the gauge behind BG Group, according to Liberum Capital.

Glencore rose 1.6 percent to close at £3.3175 on Tuesday. Xstrata rose 3.1 percent to £9.866. By 3.30pm in London yesterday Glencore was at £3.34 and Xstrata at £9.985.

Approvals from regulators in Europe, South Africa and China are yet to be obtained although they are unlikely to scupper the deal, according to Jefferies Group.

“Kudos to Ivan Glasenberg and Glencore for navigating this entire merger process so well,” Christopher LaFemina, an analyst at Jefferies, said on Tuesday. “We would be very surprised at this point if this merger is not a done deal.”

Glasenberg, a former accountant and coal trader, had to raise his all-share offer by 9 percent in September to win support from Qatar Holding. That allowed him to depose long-time rival Mick Davis, the chief executive of Xstrata, and plant himself in the top job. Glasenberg is Glencore’s biggest shareholder, owning about 15.5 percent.

“With significant extra volumes through his trading business, he’s catapulted himself into an enviable position as chief executive of the fourth-largest mining company in the world,” Gait said. “He’s played a blinder.”

Glasenberg took on the position of chief executive in 2002 and has built Glencore through a series of buyouts. The Swiss-based commodities trading firm sold $10bn of stock last year in an initial public offering, ending three decades of operating as a closely held partnership.

Gait said he expected the 55-year-old South African to have further merger and acquisition targets, and might bid for Anglo American.

“I still think there is one big deal,” Gait said. “If you wanted to cement your place in mining and corporate history there is one deal that’s still there on the table and that’s Anglo.

“I hardly think the quiet life is on the cards” for Glasenberg.

The company could make its first major acquisition in the first or second quarter of next year and “will have the firepower to do big, value-accretive merger and acquisition transactions”, Jefferies wrote in a note to clients on Tuesday.

Anglo was vulnerable to a takeover after Cynthia Carroll resigned as chief executive of the $38bn London-based mining company last month, Jefferies said.

Glencore Xstrata might also seek to buy Eurasian Natural Resources, which had a market value of about $5.6bn, Jefferies said.

Officials for Glencore, Xstrata and Anglo declined to comment.

On Tuesday Xstrata shareholders voted 67.85 percent in favour of a first resolution that included the incentives, falling short of the 75 percent threshold. A second poll in favour of the deal without the bonuses was agreed to by 78.88 percent of shareholder votes. Shareholders voted 78.43 percent to reject the retention bonuses, Xstrata said.

Bond said he would ask the board of the new company to start looking for a new independent chairman of Glencore Xstrata once the takeover was completed.

The combined company will have interests in about 35 coal mines in Colombia, Africa and Australia, and account for about 10 percent of global seaborne exports of the fuel.

It will be the third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of coal burned by power stations. The combined group will have about 11 percent of the 13 million-ton global zinc market and about 40 percent of the 1.9 million tons of the metal produced in Europe.

“In exchange for a very modest bump [in the share ratio] to 3.05, which we would still argue is a very good ratio for Glencore, Ivan Glasenberg will assume control of the company within six months,” Jefferies’ LaFemina said. “It’s an impressive result so far.”

The two companies have said they expected the transaction to be closed by the end of the year.

Qatar Holding is advised by Lazard. Glencore is working with Citigroup and Morgan Stanley. Xstrata has hired Goldman Sachs, JPMorgan Chase, Deutsche Bank and Nomura Bank International. – Bloomberg

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