Ivan Glasenberg, Glencore International Plc (GLEN)’s billionaire chief executive officer, has a week to decide on his biggest bet yet -- whether to raise his $33 billion offer for Xstrata Plc (XTA) or see his five-year effort to create the fourth-biggest mining company disintegrate.
Qatar’s sovereign wealth fund, which has 12 percent of Xstrata, ruled out accepting Glasenberg’s current bid yesterday. That means Glencore’s takeover probably will fail unless Glasenberg raises the offer in time for a shareholder vote scheduled for Sept. 7.
Glasenberg, a former accountant and coal trader who owns 16 percent of Baar, Switzerland-based Glencore, has worked there since 1984 and became CEO in 2002. He will make the final decision and will rely less on advisers as the deal nears conclusion, a person familiar with the matter said, declining to be identified because he wasn’t authorized to speak about it.
“He’s a preeminent trader, and don’t traders always leave it until the last minute?” Peter Davey, head of metals and mining research at Standard Bank (SBK) Group Ltd. in London, said by phone. “He’s never going to disclose his hand upfront. That’s how he makes money. It leaves the door open for him to try a better offer.”
Glencore has bid 2.8 of its shares for each one in Xstrata, below the 3.25-share level Qatar Holding LLC said it wanted to back the offer. Just 16.48 percent of shareholders can block the deal because under U.K. takeover rules Glencore is prevented from voting its 34 percent stake.
Other Xstrata shareholders including Knight Vinke Asset Management LLC and Standard Life Plc (SL/) have also called for a sweetened offer. Glencore may have to raise its bid to 3 shares to strike a deal, Jefferies Group Inc. (JEF) said Aug. 21.
Knight Vinke, which owns 0.5 percent of Xstrata, intends to vote against the offer “unless the terms are materially improved,” it said today in an e-mailed statement.
“If the board of Glencore is unwilling to pay for acquiring the control it seeks, we would support Xstrata’s continuing independence as a fundamentally strong and successful business,” Knight Vinke said. “Should the transaction fail to be approved, we intend to consult with other shareholders regarding the composition of the Xstrata board so as to make it more independent and robust.”
Glencore currently has three representatives on Xstrata’s board of 13 directors in Glasenberg, Telis Mistakidis and Tor Peterson. Seven members of the board, including chairman John Bond, “are considered to be independent from management and free from any business or relationship conflicts,” according to Xstrata’s website.
Glasenberg, 55, has repeatedly rejected the calls to raise the February offer, which has the backing of Xstrata’s board. He last week said in an interview that a negative vote from Qatar Holding would sink the current bid.
The South African was part of a $1.2 billion management-led buyout from Glencore founder and former U.S. fugitive Marc Rich in 1994. Last year, Glasenberg spearheaded the company’s transformation from a little-known trading company into a publicly traded entity through a $10 billion initial share offering in London and Hong Kong.
“He’s an extremely skilled negotiator,” John Meyer, an analyst at Fairfax IS Plc in London, said by phone. “Traders are always keen to do the deal. It’s just a question of adjusting the price. But will Glencore shareholders allow the adjustment of the merger terms to a level that the Qataris are going to accept?”
There have been no recent talks between Qatar Holding and Glencore, and none are currently scheduled, a person familiar with the fund’s plans said, asking to not be identified because he isn’t authorized to comment on the matter. The fund backs the principle of the deal, though it won’t vote in favor without a higher offer.
“Although it continues to support the principle of a combination of Glencore with Xstrata, it has determined that it will not support the proposed merger terms,” Qatar Holding said yesterday in a statement without repeating its view that a ratio of 3.25 was more appropriate. It “believes that Xstrata has a strong future, whether in combination with Glencore on acceptable terms or as a stand-alone entity, and that its shares represent an attractive long-term investment.”
The chances of the deal’s success are slipping below 30 percent, Liberum Capital Ltd. said in a note. Opposition to the deal has grown to about 15 percent after the Financial Times reported Norway’s sovereign wealth fund, with 3 percent of Xstrata, is joining with Qatar in planning to block the Glencore bid, Liberum said.
Xstrata rose 5.7 percent to close at 952.2 pence in London trading, the most since Feb. 2, the day talks between the two companies were confirmed. Glencore advanced 7.7 percent to 385.05 pence, the biggest gain since Oct. 27.
MSCI Inc. will adjust Glencore’s weighting in its benchmark indexes on Sept. 1, according to a report from BMO Capital Markets dated May 18. An index re-weighting can spur buying from funds that track the performance of stock indexes.
A spokesman for Glencore, the world’s largest publicly traded commodities supplier, declined to comment, as did a spokeswoman for Xstrata, which is based in Zug, Switzerland.
At current prices, Xstrata is trading at the equivalent of 2.47 Glencore shares, a discount of 12 percent to the offer of 2.8 shares. The ratio fell to as low as 2.45 on Aug. 28, the widest discount since it was announced on Feb. 7, signaling a heightened risk of the bid failing, according to data compiled by Bloomberg.
Under the current terms, Xstrata shareholders other than Glencore will hold 45 percent of the combined entity, to be known as Glencore Xstrata International Plc and listed in London and Hong Kong. Its headquarters would be in Switzerland. Glencore has agreed to pay Xstrata a so-called break fee of 298 million pounds ($470 million) should it withdraw the offer.
The combination would reunite two groups that separated a decade ago when Xstrata bought Glencore’s Australian and South African coal mines for $2.5 billion and went public in London. It would also bring Glasenberg together with Xstrata’s CEO Mick Davis, a fellow South African.
Glencore is working with Citigroup Inc. (C) and Morgan Stanley (MS) as financial advisers. Xstrata has hired Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Deutsche Bank AG and Nomura Bank International Plc. Qatar Holding is working with Lazard Ltd. (LAZ)
“If they vote against the deal, they will block the deal,” Glasenberg said of Qatar Holding in an Aug. 21 phone interview. “From my point of view, from Glencore’s point of view so be it. It’s not the end of the world. We will move on.”
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