March 5 (Bloomberg) -- Glencore International Plc Chief Executive Officer Ivan Glasenberg said its 22.1 billion-pound ($35 billion) all-share offer for Xstrata Plc is a “fair price,” rebuffing calls from some investors to raise it.
The deal “has been negotiated for a long time, fully accepted by Xstrata’s CEO and unanimously accepted by their board, so therefore that’s the price,” Glasenberg, 55, said today in an interview after Glencore announced earnings. “I’m a little lost why people are expecting us to pay a bigger premium than what has been put on the table.”
The world’s largest publicly traded commodities supplier has faced calls from Xstrata investors including Schroders Plc, Fidelity Worldwide Investment and Standard Life Plc to raise its Feb. 7 offer of 2.8 of its shares for each one in the target. The transaction would create the fourth-largest mining company.
“It seems to be rather on the stingy side,” Rupert Nathan, head of U.K. fund management at Fat Prophets, told Linzie Janis and Poppy Trowbridge on Bloomberg Television’s “Countdown” today. “If you look at the two companies side by side, Xstrata’s bringing more to the party. It’s a very good deal for Glencore, but not so good for Xstrata.”
Glencore, which already owns 34 percent of Zug, Switzerland-based Xstrata, declined 4 percent to close at 403.35 pence in London, its lowest since Jan. 16. Xstrata, the world’s largest exporter of thermal coal, fell 4.9 percent to 1,137.5 pence, its lowest since Feb. 1.
“Most deals where it’s been a merger of equals have been done at similar ratios,” said Glasenberg, the biggest shareholder in Glencore with a 15.8 percent stake. Glasenberg, who will be deputy CEO to Xstrata’s Mick Davis at the combined company, said he had expected some Xstrata holders to seek a higher price.
“With a concerted program of Glencore and Xstrata shareholder meetings now set to follow, we feel expectations of an increased offer may dampen,” London-based Liberum Capital Ltd. analysts Dominic O’Kane and Ash Lazenby said today in an e-mailed note.
Investors holding 16.48 percent of Xstrata can succeed in voting to block the deal. That’s because the U.K. takeover code prevents Glencore from voting its stake in Xstrata, putting the final decision into the hands of the shareholders who control the rest of the company.
“Hopefully, when they look at the numbers and people review the numbers and they do their workings on the deal, they will realize that if it is a merger of equals, which it has been set out as, it’s a fair price,” Glasenberg said. He declined to say whether the current bid was his final offer.
Glencore’s 2011 net income before exceptional items rose 7 percent to $4.06 billion, the company said today. It declared a final dividend of 10 cents a share. Sales rose 28 percent to $186 billion, it said.
Glasenberg, paid a salary of 925,000 pounds, declined to take a bonus for 2011, he said today by phone. He was entitled to a bonus of as much as 200 percent of his salary, according to the prospectus for the company’s May initial public offering. He also intends to reinvest his entire final dividend of about $109 million in company stock, Glasenberg said.
Second-half profit was $1.61 billion, Glencore said in an e-mailed statement. That’s a decline of 29 percent from a year earlier after losses on cotton trading.
Glencore said Feb. 7 that 2011 adjusted earnings before interest and tax from its agricultural trading unit swung to an $8 million loss from a $659 million profit a year earlier after experiencing an “unprecedented cotton market.”
The price of cotton in New York sank 37 percent last year, the biggest annual slump since 2004, as slowing economic growth eroded consumption and farmers boosted output. Losses on cotton marketing were a “one-off,” Glasenberg said today.
The loss on cotton drove an 18 percent decline in Glencore’s adjusted earnings before interest and tax at its marketing unit to $1.9 billion. It reported a 17 percent gain in adjusted earnings before interest and tax from its metals and minerals unit to $3.5 billion.
“Emerging-market urbanization will continue to increase commodity intensity per capita as people strive to improve their living standards to a level which is taken for granted in developed societies,” Glasenberg said in the earnings statement. “China will continue to remain the central driving factor given its existing scale, resources and growth objectives.”
China, the biggest consumer of raw materials, today pared its annual economic growth target to 7.5 percent from an 8 percent goal in place since 2005. Officials will also aim for inflation of about 4 percent this year, unchanged from the 2011 goal, according to a speech that Premier Wen Jiabao delivered at the annual meeting of the National People’s Congress in Beijing.
“With close to 50 percent of the world’s commodities consumed in China, 7.5 percent growth means we’ve still got to produce around about 3.75 percent growth in all products,” Glasenberg said in the interview. “That’s going to be pretty difficult to achieve.”
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