February 23, 2024

DealBook: Glencore Increases Offer in Bid to Secure Deal

9:28 a.m. | Updated

LONDON — Glencore International, the world’s biggest commodities-trading company, has potentially saved its mega-merger with the mining company Xstrata by sweetening the terms of the all-share deal at the last minute as it seeks to gain shareholder support.

The commodities trader is trying to win over investors, including Qatar Holding, Xstrata’s second-largest shareholder, which had threatened to block the deal.

Under the terms of the revised deal, Glencore has proposed to increase its offer to 3.05 shares for every Xstrata share. The commodities trader had initially offered 2.8 of its own shares for every Xstrata share.

For months, Qatar Holding had held out for a ratio closer to 3.25. Qatar, which owns 12 percent of Xstrata shares, was poised to vote against the deal at a shareholder vote on Friday.

Within minutes of the vote, Glencore increased its offer with the condition that Ivan Glasenberg, the chief executive of Glencore, be made the chief executive of the merged company.

Under terms the companies agreed in February, Mick Davis, Xstrata’s chief executive, was to lead the new company, even though Xstrata’s shareholders would own less than 50 percent of the combined Glencore-Xstrata.

Xstrata confirmed that it had received the new proposal. The new offer also allows the companies to change the structure of the deal from a merger that required 75 percent shareholder approval to a takeover. That would then mean Glencore, with its 34 percent stake in Xstrata, would only need 16 percent or more of Xstrata shareholders to approve the new offer.

“This is now a lot cleaner deal,” said Michael Rawlinson, head of natural resources at Liberum Capital in London. “It’s more of a takeover with Ivan as C.E.O.”

Glencore shares fell 4 percent in midday trading in London, while stock in Xstrata rose 7.7 percent on Friday, as analysts now expected the merger to take place.

The increased offer is a major change for Mr. Glasenberg, who said last month that it was “no big deal” if Qatar’s opposition quashed the Glencore-Xstrata merger. He had held firm in public that no change of terms would be forthcoming and suggested to Glencore shareholders and financial advisers that Glencore could make a new offer for Xstrata next year.

Glencore’s initial public offering last year, which was the biggest stock market listing by value in the history of the London Stock Exchange, paved the way for an Xstrata merger.

Qatar’s opposition to Glencore’s initial deal had galvanized other Xstrata shareholders, who also were disgruntled about the deal terms.

Together, they had been on the verge of blocking a merger that would combine Glencore, the world’s biggest trader of commodities like wheat and aluminum, with Xstrata, one of the world’s biggest miners of copper and coal.

“We are supportive of the improved terms and the changes to the executive governance arrangements,” said David Cummings, head of equities at Standard Life Investments, a fund manager that owns 1.4 percent of Xstrata and 0.8 percent of Glencore. “The deal will, we believe, enhance the growth prospects of the combined group.”

Previously, Mr. Cummings had publicly criticized the deal, calling the earlier offer “inadequate.”

Simon Murray, Glencore’s chairman, adjourned the Glencore shareholder meeting shortly before it was due to begin on Friday morning in Zug, Switzerland.

Developments have “happened very recently overnight,” Mr. Murray told shareholders and journalists who had gathered for the vote.

An Xstrata representative did not specify the date of a new shareholder vote on the deal. The new terms were a proposal in outline form, not a firm offer, Xstrata added. The company first planned to vote on the transaction in May but was forced to push the vote to September because of Qatar’s opposition.

The new delay means that the deal will now take at least eight months to complete from the date it was unveiled in February. During this time, metal prices have fallen sharply, hurting Xstrata’s earnings, which fell 33 percent in the first six months of the year. Xstrata’s declining fortunes this year had led most London analysts and investors to not expect an improved offer.

The companies have considered a merger several times over the last five years, most recently in the months leading up to the flotation, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

In a presentation to shareholders, Xstrata had discussed the benefits of a deal. The last attempt was several months before Glencore’s May 2011 flotation, according to a banker who was present during the negotiations.

A banker to one of the two companies, who spoke on the condition of anonymity because he was not authorized to speak publicly, confirmed that Mr Glasenberg made the new offer to Qatar at around 9 p.m. London time on Thursday.

“This is all about face-saving,” the banker said. The higher offer “was always there as a possibility,” he added. But Qatar and Glencore’s hardening public opposition had blocked all lines of communication and potential compromise.

While Qatar has won improved terms, it may have to compromise on the issue of executive management. Qatar spent $5 billion buying Xstrata shares in part because of its confidence in Mr. Davis and his team, and the sovereign wealth fund supported Mr. Davis as the head of Glencore-Xstrata.

Article source: http://dealbook.nytimes.com/2012/09/07/glencore-postpones-meeting-in-bid-to-secure-deal/?partner=rss&emc=rss