Ivan Glasenberg, the billionaire chief executive officer of Glencore International Plc, may have salvaged more than his proposed merger with Xstrata Plc by raising his offer for the mining company.
The attempt to rescue the deal may help six investment banks including Citigroup Inc. and Deutsche Bank AG keep an estimated $130 million in fees threatened when Qatar Holding LLC, the Persian Gulf sovereign wealth fund that owns 12 percent of Xstrata, objected to the initial terms. The Glencore-Xstrata combination, which would create the world’s fourth-largest mining company, is at $36 billion the largest announced merger of the year by far.
To be sure, Glencore’s new proposal still faces obstacles. In a statement today, Xstrata expressed concerns about the premium being offered to its shareholders and the possibility of Glasenberg becoming CEO of the combined company.
Europe’s banks are suffering as the region’s sovereign debt crisis depresses markets and holds big corporations back from mergers, acquisitions and initial public offerings. Even with the Glencore-Xstrata deal, the total volume of takeovers in Europe this year has fallen 22 percent, to $321 billion, with just one other transaction -- GDF Suez’s proposed buyout of the U.K.’s International Power Plc -- valued at more than $10 billion, according to data compiled by Bloomberg.
Glencore today proposed increasing the ratio of its own shares to be exchanged for Xstrata’s to 3.05 from 2.8, just minutes before a meeting of Xstrata investors that could have voted down the original offer, which was announced in February. Glasenberg, 55, initiated negotiations overnight with Qatar Holding, people familiar with the discussions said, after the CEO insisted last month that he was prepared to let the deal fail if Qatar refused to drop its opposition.
Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank and Nomura International Plc are working with Xstrata, while Citigroup and Morgan Stanley are advising Glencore. Qatar Holding has tapped Lazard Ltd. for advice.
Glencore and Xstrata’s advisers have as much as $130 million in fees riding on the merger’s success, according to data from New York-based research firm Freeman & Co. If the deal fails, the advisers could take in as little as 10 percent of that sum, as well as a share of the 298 million-pound ($477 million) breakup fee. Qatar Holding is probably paying Lazard a flat fee of about $2 million, Freeman said.
“This will be a sigh of relief for the M&A industry as a whole,” said Scott Moeller, a professor at City University of London’s Cass Business School. “That’s especially true because there’s been a history over the past few years of the largest deals not being completed.”
Of the three biggest mining mergers announced since 2007, two have failed: BHP Billiton Ltd.’s proposed $115 billion merger with Rio Tinto Plc and its $43 billion offer for Canada’s Potash Corp. of Saskatchewan. In the same period, failed mega-deals involving European companies have also included Prudential Plc’s $35.5 billion takeover of insurance firm AIA Group Ltd. and AT&T Inc.’s scrapped $39 billion acquisition of Deutsche Telekom AG’s T-Mobile USA unit.
European banks, which have cut about 172,000 positions since 2009, according to data compiled by Bloomberg, and non-European firms with significant operations in the region are scaling down their investment banking units. Tokyo-based Nomura, which broke onto the scene as a global investment banking player with its 2008 purchase of Lehman Brothers Holdings Inc.’s European and Asian unit, announced this week that it’s looking to derive almost half the savings in a $1 billion cost-cutting plan in Europe.