Glencore Likely to Raise Bid to Win Xstrata Holders, HSBC Says
Stock Chart for Glencore Xstrata PLC (GLEN)
Glencore International Plc (GLEN), seeking to buy Xstrata Plc (XTA) for 24 billion pounds ($38.2 billion), is likely to raise its agreed all-share offer in April by as much as 18 percent, according to HSBC Holdings Plc.
The Swiss commodities trader could boost its offer from the current ratio of 2.8 of its shares for each Xstrata share to as much as 3.3 shares, London-based HSBC analysts Andrew Keen, Lourina Pretorius and Thorsten Zimmermann wrote in a report today. With the current offer, Xstrata holders get 44 percent of the combined company though contribute 48 percent of pro-forma net income in 2011, HSBC said.
Standard Life Plc and Schroders Plc, two of Xstrata’s largest shareholders, say they will oppose the deal unless Glencore boosts its friendly all-stock offer. Glencore’s offer, announced Feb. 7, represents a deal premium of about 8 percent, which is described by HSBC as “pretty slim.”
After talks with Xstrata investors “our impression is that, right or wrong, they see the potential risks of lower transparency and a lack of track record by Glencore as outweighing the synergies for the merged entity,” HSBC said. “Glencore wants this deal more than the recalcitrant end of Xstrata’s register, and some form of a sweetener is likely to ensure the 75 percent voting threshold is reached.”
Fidelity Worldwide Investment, which owns at least 1.5 percent of Zug, Switzerland-based Xstrata, said Feb. 10 that while it supports the bid “in principle,” the terms of the deal “need to be revisited.”
Simon Buerk, a spokesman for Baar, Switzerland-based Glencore, declined to comment. Alison Flynn, a spokeswoman for Xstrata, couldn’t immediately be reached for comment.
Investors holding 16.48 percent of Xstrata can succeed in voting to block the deal. That’s because Glencore won’t be allowed to vote its 34 percent stake in Xstrata, according to the U.K.’s takeover code, putting the final decision into the hands of the shareholders who control the rest of the company.
BlackRock Inc. is the largest holder of Xstrata after Glencore with a 6 percent stake. It has yet to declare a view on the bid. A BlackRock spokeswoman declined to comment.
Glencore, the world’s largest publicly traded commodity supplier, wants to combine with Xstrata, giving it more coal and copper mines to create a business with $209 billion in sales, the companies said Feb. 7. The takeover would be the biggest- ever mining deal if completed and form a commodities supplier to challenge BHP Billiton Ltd. and Rio Tinto Group.
The 8 percent premium is calculated based on Glencore’s average price in the 20 days before the deal was first reported Feb. 2. That would be the second-lowest premium for any mining deal worth more than $5 billion, according to data compiled by Bloomberg.
Any revision of the offer may be in the range of 3 to 3.3 shares for each Glencore share, HSBC said. The offer may be formally presented to investors in April followed by a vote in May, it said.
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