Glencore Nears Xstrata Deal Prize as Qatar Takes Back Seat

Glencore May Near Xstrata Deal Prize With Qatar Taking Back Seat
At stake is a long-contemplated combination that would couple Glencore’s globe-spanning trading operations with Xstrata’s coal, copper, and zinc mines, creating the fourth-largest mining firm. Photographer: Gianluca Colla/Bloomberg

Ivan Glasenberg, the billionaire chief executive officer of Glencore International Plc, may be nearing a long-sought takeover of Xstrata Plc as all sides signal a willingness to reach a deal that would be this year’s biggest merger, according to people familiar with the situation.

Xstrata is open to Glencore’s revised 22 billion-pound ($35 billion) offer, announced Sept. 10, and may soon recommend its support to shareholders, the people said. The proposal would force Xstrata CEO Mick Davis to depart within six months. Davis and Glasenberg are friends and rivals whose relationship dates to the 1970s, when they met in South Africa, their home country.

Qatar Holding LLC, the sovereign wealth fund that compelled commodities trader Glencore to increase its offer for Xstrata, is unlikely to intervene forcefully in any talks, and will rely substantially on the views of Xstrata’s board, two of the people said, asking not to be identified discussing a private matter. Qatar owns about 12 percent of the mining firm.

“It’s unlikely that Glencore would’ve announced the revised terms without the support of Qatar,” said Richard Knights, a London-based analyst at Liberum Capital Ltd. “We think Xstrata’s board is likely to support it.”

At stake is a long-contemplated combination that would couple Glencore’s globe-spanning trading operations with Xstrata’s coal, copper, and zinc mines, creating the fourth-largest mining firm. The combined company would be a vertically-integrated commodities giant, with an interest in the production, transportation and trading of everything from the food on consumers’ plates to the metal used for their utensils.

Enforced Departure

After Qatar objected to the original terms announced in February, Glencore raised its all-share bid by 9 percent, increasing the proposed exchange ratio of its own shares for each of those in Xstrata to 3.05 from 2.8.

The trading firm also said that apart from forcing the departure of Davis, 54, it was “content” with retention bonuses designed to safeguard the loyalty of executives, totaling $278 million under the previous terms, and with Xstrata chairman John Bond taking the same role in the combined group. Glasenberg, 55, would become CEO, replacing Davis within six months under the new proposal. The original deal called for Davis to lead the company for at least three years and Glasenberg, Glencore’s largest shareholder with a stake valued at $6.5 billion, would have been deputy CEO.

While the proposed merger may still fail and Xstrata continues to evaluate Glencore’s proposals, the concessions and the sweetened offer have allayed many of its concerns, said one of the people. Xstrata’s board has set a deadline of Sept. 24 to respond formally to the proposal.

Qatar Talks

“It’s going to be very hard for the Xstrata board to say no,” Andrew Keen, an analyst at HSBC Holdings Plc in London, said by phone. “The probability is leaning towards a yes vote.”

A Glencore spokesman declined to comment. An Xstrata spokeswoman and Qatar spokesman also declined to comment. Xstrata fell 1.8 percent to 993.60 pence, while Glencore declined 1.3 percent to 359.60 pence at the close in London.

The revised offer followed an overnight negotiation late last week between Glasenberg and Qatari prime minister Sheikh Hamad Bin Jasim Bin Al-Thani, who is also the chairman of the fund. The Middle Eastern country has become an increasingly visible player in the commodities sector, with recent investments in Brazil’s AUX gold-mining business and a resources fund managed by Barclays Plc, along with the Xstrata stake, which has quadrupled in size since February.

Marc Rich

Calling for Davis’s ouster is a significant reversal for Glasenberg, a hard-charging trader who can often be seen jogging before dawn in London’s Hyde Park. At an industry function on June 7, Glasenberg said he was “happy not to have the CEO job. Mick can do it great.”

The two men met at Wits University in Johannesburg, where Davis was a lecturer and Glasenberg a student. Both qualified as accountants, after which their paths temporarily diverged.

Glasenberg joined commodity trader Marc Rich & Co., founded by the former fugitive U.S. financier, in 1983. After a stint as a coal trader, he ran the company’s coal department. Management bought out founder Marc Rich in 1994 and renamed the company Glencore. Glasenberg became CEO in 2002.

BHP Role

Davis was hired in 1994 as finance director of South African miner Gencor Ltd., which eventually became part of BHP Billiton Ltd. He left in 2001 to join Xstrata, which sold shares to investors in London the following year. Under his leadership, Xstrata increased its market value almost 100-fold, becoming a 30.5 billion-pound business with more than 70,000 staff in 20 countries.

A successful merger of Glencore and Xstrata would be the second-largest mining deal ever, lagging only behind Rio Tinto Group’s $38 billion acquisition of Canadian metals firm Alcan Inc. in 2007. Global mining deals swelled to $98 billion last year, the highest level since 2007, according to data compiled by Bloomberg, as demand for commodities from developing nations and the deteriorating quality of mineral reserves push producers to seek greater economies of scale.

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