Glencore International Plc (GLEN) raised its offer for mining company Xstrata Plc (XTA) by 9 percent in a bid to salvage the $36 billion takeover and overcome opposition from investors including Qatar’s sovereign wealth fund.
The revised offer of 3.05 Glencore shares for each Xstrata share, a 17.6 percent premium, is “significantly lower than would be expected in a takeover,” Zug, Switzerland-based Xstrata said today in a statement responding to the proposal.
Glencore, owner of 34 percent of Xstrata, had offered 2.8 of its shares in February in an all-stock offer. Under today’s revised proposal, Glencore Chief Executive Officer Ivan Glasenberg would be CEO in the combined group, reversing a plan for Xstrata’s Mick Davis to hold the position.
Qatar Holding LLC and Knight Vinke Asset Management LLC had sought a higher price for their Xstrata shares and said they would vote against the year’s biggest takeover. Glencore is seeking to complete a five-year plan to create the fourth- largest mining company.
“What is unknown is whether Xstrata shareholders would follow the board’s view should it recommend against acceptance,” Tony Robson, an analyst at BMO Capital Markets, wrote in a report today. Xstrata’s board may find it difficult to rebuff the new proposal given it agreed to Glencore’s earlier bid of 2.8 shares, BMO said.
Qatar was unaware that Glencore would seek to drop plans to install Xstrata’s Davis as CEO of a merged group, according to two people with knowledge of the talks. While Qatar is broadly supportive of Glencore’s new terms for the takeover, it doesn’t agree with the proposed change to the CEO role, the people said, declining to be identified as the matter is confidential.
A Qatar Holding spokesman declined to comment.
Xstrata gained 3.6 percent to close at 1,014 pence in London after earlier rising as much as 11 percent. Glencore dropped 3.6 percent to 378.05 pence after earlier falling as much as 7 percent. Xstrata stock traded at 2.68 times that of Glencore, up from a ratio of 2.5 yesterday.
The offer values the Xstrata shares Glencore doesn’t already own at $36 billion at current prices.
It includes the option of changing the offer to a takeover from a so-called scheme of arrangement. That would reduce the level of acceptances needed to complete a deal to more than 50 percent, compared with 75 percent using a scheme of arrangement.
“The intention to replace Mick Davis as CEO and to amend the management incentive arrangements represents significant risk around the retention of the Xstrata senior and operational management,” Xstrata said. The company will decide whether to reconvene shareholder meetings once it gets a “detailed proposal,” it said.
Glencore and Xstrata shareholders today both voted to adjourn shareholder meetings to vote on the earlier plan. UBS AG analyst Myles Allsop said Sept. 3 it was unlikely Xstrata’s board would agree to switching the offer from a scheme to a takeover.
Standard Life Plc (SL/), which owns 1.4 percent of Xstrata and 0.8 percent of Glencore, said today it backed the new offer. “We are supportive of the improved terms and the changes to the executive governance arrangements,” David Cumming, head of equities at Standard Life Investments, said in an e-mailed statement. “The deal will, we believe, enhance the growth prospects of the combined group.”
Qatar Holding, controlled by the Persian Gulf state’s royal family and the owner of 12 percent of Xstrata, became Glencore’s biggest obstacle to completing the deal. The fund had called for Glencore’s original offer to be raised to 3.25.
The higher bid comes a week after Qatar said it supported the deal in principle though reaffirmed its opposition to the original terms. The fund “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,” it said Aug. 30.
“We still consider this a better deal for shareholders in Glencore than in Xstrata but this is closer to our fair value estimate,” Paul Gait, an analyst at Sanford C. Bernstein, wrote in a note today. It’s a “good deal for Glencore as it would improve Glencore’s operational asset portfolio and provide access to Xstrata’s talented operational management.”
Glasenberg, 55, is Glencore’s largest shareholder with about 15.7 percent. The accountant turned coal trader had repeatedly rebuffed calls to raise his offer, which was agreed on with Xstrata’s board even as Qatar continued to build its stake. As recently as Aug. 21 Glasenberg said he was ready to move on from the deal rather than overpay.
A 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. Under the original plan it would’ve brought together their two South African CEOs in Davis and Glasenberg.
Davis’ role under Glencore’s new proposal is unclear. A Glencore spokesman declined to comment further.
“Potentially Mick Davis not having the CEO post may upset Xstrata shareholders, but probably Ivan thought if it’s going to cost me so much money I want control,” Standard Bank’s Davey said.
Votes from as little as 16.48 percent of Xstrata’s shares would’ve been sufficient to block the deal under a scheme of arrangement because Glencore can’t vote its 34 percent stake under the terms of the deal.
Today’s adjournment of Glencore’s shareholder vote was due to “very recent developments overnight,” Glencore Chairman Simon Murray said at the company’s meeting in Zug. “We’ve been unable to give you warning. My apologies again for bringing you here under what would be almost false pretenses.”
Xstrata is being advised by Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc. Glencore, which has agreed to pay Xstrata a so-called break fee of 298 million pounds should it withdraw the offer, has tapped Citigroup Inc. and Morgan Stanley. Qatar Holding has been advised by Lazard Ltd. (LAZ)
Rising commodity demand from developing nations and the deteriorating quality of mineral reserves are spurring producers to merge and boost efficiency. Global mining deals swelled to $98 billion last year, the highest level since 2007, from $76 billion in 2010, according to data compiled by Bloomberg.
Glencore was founded in 1974 as Marc Rich & Co. by the former fugitive U.S. financier. The company, which changed its name in 1994 after management bought Rich out, ended more than three decades of operating as a closely held partnership with its May 2011 initial public offering when it sold $10 billion in shares.
The trader of commodities from copper to cotton owns mines, plants, ports and warehouses. It employs 2,800 people at marketing units in 40 nations and about 54,800 at industrial operations in more than 30 countries. Its oil shipping fleet comprises 203 vessels, according to a 2010 sustainability report.
The mining industry’s biggest takeover to date is Rio Tinto Group’s 2007 acquisition of Alcan Inc. for $38 billion. BHP Billiton Ltd. (BHP), the largest mining company, withdrew from what would have been the industry’s biggest deal, a $66 billion offer for Rio, in 2008.
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