Glencore-Xstrata Cleared by China as Davis Waives CEO Role

Glencore-Xstrata Deal Said to Win China Regulator Approval
A sign directs visitors and goods vehicles at the headquarters of Glencore International Plc in Baar. Photographer: Gianluca Colla/Bloomberg

Glencore International Plc, the world’s largest publicly traded commodities supplier, cleared the final regulatory hurdle in its $30 billion acquisition of Xstrata Plc after gaining approval from Chinese authorities.

China’s Ministry of Commerce agreed to the takeover on the condition the new company sells the Las Bambas copper mine in Peru, according to a statement on the ministry’s website today. Mick Davis, Xstrata’s chief executive officer, won’t serve six months in the role at the new company as previously announced, the companies said in separate statements.

The decision in Beijing removes the last obstacle to completing the 14-month-old deal, allowing Glencore to create the fourth-largest mining company by adding coal, copper, nickel and zinc mines to its commodities trading empire. The combined business will have revenue of about $250 billion this year, according to Paul Gait, an analyst at Sanford C. Bernstein & Co.

The concession required by China “is going to be seen as a clear positive for the company and it’s a task that’s very achievable,” Jeff Largey, an analyst at Macquarie Group Ltd. in London, said by phone. “There’s probably a lot of companies out there who could be interested in buying that asset.”

Glencore, whose CEO Ivan Glasenberg will run the combined company, rose 1.3 percent to close at 325.10 pence in London trading. The stock earlier jumped 6 percent after Bloomberg News reported the Chinese approval. Xstrata gained 2 percent to 986 pence. The takeover is scheduled to be completed by May 2, with the new shares trading the following day.

Davis Payment

Davis, 55, will be paid 4.63 million pounds ($7.1 million) after terminating an October agreement to be CEO of the combined group for six months, Glencore said. Davis will act as a consultant to the group until June 30. He will be entitled to 30 hours of private use of an Xstrata aircraft in lieu of a consultancy fee, Baar, Switzerland-based Glencore said.

Senior Xstrata executives including Charlie Sartain, head of copper, nickel chief Ian Pearce and Loutjie Smit, interim CEO of Xstrata alloys, will leave the company once the deal is complete. Strategy and corporate affairs head Thras Moraitis and chief legal counsel Benny Levene will also depart after acting as consultants for six months, Zug, Switzerland-based Xstrata said today.

“With the majority of the Xstrata executive committee now departing, it leaves the new company with a potentially difficult task of managing a number of complex projects and operations without the existing divisional heads,” BMO Capital Markets analyst Tony Robson said in a note to clients.

New Chairman

Xstrata Chief Financial Officer Trevor Reid said in December he won’t stay on at the combined company, while Chairman John Bond said in November he won’t take on the role at the new group as originally planned. Glencore is yet to name Bond’s replacement.

China’s competition regulator focused its review on the new company’s influence in the copper-concentrate market, Glencore’s Glasenberg said March 6. The group will be the world’s third-biggest producer of mined copper.

The agreement with China requires Glencore to pursue the sale of Las Bambas to a buyer approved by MOFCOM by Sept. 30 next year, it said. The project’s value is estimated at $6.5 billion by BMO.

Should Glencore fail to sell the project, it would be required to auction its interest in one of four projects -- Tampakan, Frieda River, El Pachon or Alumbrera -- within three months of Oct. 1, 2014.

Supply Deal

Xstrata is building the Las Bambas mine at a cost of $5.2 billion. The site is expected to produce 400,000 tons of copper a year starting 2015 for at least the first five years.

Glencore also agreed to supply China with set amounts of copper, zinc and lead concentrate for 8 years starting Jan. 1 this year. Separately, Glencore agreed to pay Nyrstar NV 44.9 million euros ($55.9 million) to end the commodity trader’s accord to sell Nyrstar’s zinc in Europe. Nyrstar said it will use the funds to buy Glencore’s stake in the company, a figure equating to 3.39 euros a share.

Glasenberg has pursued a strategy of growth by acquisition in his 11 years as Glencore CEO. The takeover deal agreed on with Xstrata’s board was thrown into turmoil in June when Qatar’s sovereign wealth fund built a 12 percent stake and demanded Glencore boost its offer.

Tony Blair

The 56-year-old accountant-turned-coal-trader raised his all-share offer 9 percent in September following an 11th-hour negotiation with the Qataris mediated by former British Prime Minister Tony Blair. That allowed him to depose long-time rival Davis, originally designated CEO with Glasenberg as president, and install himself in the top job.

Glasenberg owns about 16 percent of Glencore and is its biggest shareholder. He’s been CEO since 2002 and worked for the company for 28 years. The takeover comes less than two years after he steered the group through a $10 billion initial public offering that ended more than three decades of it operating as a closely held company.

The combined group will also be the world’s largest zinc miner and the biggest exporter of power-station coal. The company will have about 11 percent of the 13 million-metric-ton global zinc market and about 40 percent of the 1.9 million tons of the metal produced in Europe. It will employ 130,000 people.

The company will have interests in about 35 coal mines in Colombia, Africa and Australia, and make up about 10 percent of global seaborne exports of the fuel.

Glencore has been advised by Citigroup Inc. and Morgan Stanley on the deal. Xstrata hired Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc. Lazard & Co. advised Qatar Holding.

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