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DealBook: Glencore’s Bid to Buy Xstrata Is Increased at the 11th Hour

September 8, 2012 by Leave a Comment

LONDON — Glencore, the world’s largest commodities trader, saved its megamerger with Xstrata from collapse on Friday by sweetening its offer for the large multinational mining company. But the deal still remains in limbo after Xstrata raised concerns about the revised proposal.

Under the new terms, Glencore is offering 3.05 of its shares for every Xstrata share, valuing the combined company at $90 billion. The commodities trader had initially agreed to exchange 2.8 shares.

Glencore is trying to win over investors as it aims to gain size and scale in an industry increasingly under financial pressure.

Prices of natural resources have plummeted over worries that demand from important customers in the emerging markets might be faltering. The situation has weighed on the profits and share prices of major players like Glencore and Xstrata. Earnings at Xstrata dropped by 33 percent in the first half of the year.

By teaming up, the two companies would significantly increase the size of their balance sheet, giving them additional firepower to make deals and invest in new projects. They could also use the merger to cut costs and better weather the market volatility.

But Qatar Holding, the sovereign wealth fund of the Persian Gulf nation and Xstrata’s second-largest shareholder, had threatened to derail Glencore’s effort. For months, the emirate said it would vote against the deal unless Glencore improved the terms. Investors were set to vote on the deal Friday morning.

While Glencore appears to be moving toward compromise, it is not clear whether the proposed terms will appease Xstrata shareholders. Qatar has not publicly weighed in on the deal, and the board of Xstrata has indicated the new price might still be too low. On Friday, the mining company said Glencore’s proposal “lacks sufficient information on key elements.”

The stage is now set for a round of fractious negotiations that could last for weeks. While increasing the price, Glencore also added conditions to the deal, which may not sit well with Xstrata shareholders.

Under the proposal, Ivan Glasenberg, Glencore’s chief executive, would lead the merged company. Previously, Mick Davis, the head of Xstrata, was set to take over as chief executive. Qatar has been supportive of Mr. Davis and his management team.

Glencore also wants the option to restructure the deal as a takeover, rather than a merger. By doing so, the company would need only 50 percent of Xstrata investors to agree. Glencore, which already owns 34 percent of Xstrata, would also be able to vote its shares in a takeover. Such a move would greatly dilute Qatar’s sway.

“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.”

While Qatar gave no public indication of its support or opposition, Xstrata warned shareholders about the potential problems with the deal. The company highlighted the “significant risk” if Mr. Davis and his lieutenants did not lead Glencore-Xstrata.

Xstrata also said the new ratio offered a premium that was “significantly lower than would be expected in a takeover.” Xstrata said the bid represented a 22.2 percent premium to its closing price on Thursday. In 35 proposed mining deals over the eight years to 2011, the average premium paid was 31 percent, according an HSBC report published in February.

“It’s interesting that they recommended a deal at 2.8 and now say that 3.05 is not high enough,” said Andrew Keen, mining analyst at HSBC. “Xstrata looks like they’re mounting a defense.”

Xstrata’s stance gained support. On Friday, Knight Vinke, the American activist investor, said it “welcomed the Xstrata board’s belated willingness to represent the interests of minority investors.” Knight Vinke sided with Qatar in July, after the emirate demanded Glencore improve the merger ratio to 3.25 to 1.

Richard Buxton, a fund manager at Schroders, told reporters, “We were prepared to accept 3.25, and we hope the Qataris stick to that number.” Schroders owns nearly 1 percent of Xstrata.

Other shareholders welcomed Glencore’s offer. “We are supportive of the improved terms and the changes to the executive governance arrangements,” said David Cumming, head of equities at Standard Life Investments, a fund manager that owns 1.4 percent of Xstrata and 0.8 percent of Glencore. Previously, Mr. Cumming had criticized the deal, calling the earlier offer inadequate.

Xstrata and Glencore representatives did not say when a new shareholder vote would take place. Glencore must first present a firm offer.

The revised deal represents an about-face for a chief executive who has gained a reputation as one of the toughest negotiators in the commodities business. For months, Glencore seemed unwilling to budge on its initial bid. Last month, Mr. Glasenberg said that it would be “no big deal” if the merger failed and suggested privately that Glencore could make a new offer for Xstrata next year.

The new proposal came together at the last minute. After fast-and-furious discussions, Mr. Glasenberg approached Qatar with the deal late Thursday, according to a banker to one of the two companies, who spoke on the condition of anonymity.

As Glencore shareholders gathered Friday morning in Zug, Switzerland, to vote, Simon Murray, the company’s chairman, adjourned the meeting, citing developments that had “happened very recently overnight.” After the proposal was unveiled publicly, Xstrata adjourned its own shareholder meeting. A few hours later, Xstrata released its critique of the outlined terms.

Glencore’s package of new proposals is “all about face-saving,” the banker said. A higher offer “was always there as a possibility.”

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

Filed Under: Global Business Tagged With: , ,

Wealth Matters: MF Global Customers Seeking Access to Accounts

November 5, 2011 by Leave a Comment

James Koutoulas, chief executive of Typhon Capital Management in Chicago, said 85 percent of his clients’ money was tied up in MF Global, about $55 million.

About 150,000 accounts — from investors big and small — were left in limbo in the firm’s rapid demise. Regulators are in the midst of trying to transfer about a third of the accounts to other commodities brokers and securities firms. That usually takes place in a matter of days or weeks.

But, as in any bankruptcy filing, there are complications. Regulators say they are looking for roughly $600 million in client funds that they believe are missing. Before clients can get full access to their funds, the regulators are first going to have to determine where that money is and, then, seek to recover it.

Also unresolved is whether the money in some clients’ accounts was mixed in with the firm’s money, as regulators have contended. That could lead to further litigation over the ownership of money in the accounts.

And then there is the fact that most of the firm’s investments were not in securities, where the dollar value of an investment is clear, but in commodities, where investors put up what is essentially a down payment on what a commodity will be worth on a future date. Sorting out who is owed what will also take time.

While MF Global may not have been a household name, it was respected in the commodities and futures markets. It provided the essential service of holding money and clearing trades.

The firm’s brand name was why smaller clients said they did not worry whether their money would be safe. Mark Tucker, who lives in the English seaside village of West Runton, population 1,633, manages rental properties by day. But he said he had been trading options for the last 18 years and had $50,000 with MF Global (and another $50,000 with another clearinghouse).

He has not had access to his account since Monday and was worried about some of the options he bought before the firm’s bankruptcy filing. They are bets that the prices of crude oil, coffee and sugar will fall. “It’s not a comfortable position,” he said. “By definition, the potential for losses on short options is limitless.”

Like many clients, he is trying to separate rumor from reality. He had heard that his account would be moved to another broker. He said his broker had been “trying to reassure me the only reason it hasn’t happened is they have 50,000 of these accounts and it should move over in the next 24 to 48 hours, but that’s what they told me 24 to 48 hours ago.”

So do clients of other commodities clearinghouses need to worry about the safety of their money?

SITUATION James W. Giddens, a partner at Hughes Hubbard Reed and the court-appointed trustee in the case, said his group was working closely with the Commodity Futures Trading Commission and the Securities Investor Protection Corporation to transfer accounts to other commodity brokers. He said clients would be notified “if and when their accounts have been transferred.”

The court has approved the transfer of 50,000 commodities accounts to other brokers because those are the easiest to move and the most likely to be picked up. A spokesman for the trustee said that the selection of which accounts would be moved was led by the CME Group, the giant exchange where MF Global did business. On Friday, the CME Group announced that 15,000 accounts had been moved.

But even the clients whose accounts are transferred will not get all their money back immediately. Given that some of the funds involved are contested, clients will have access to only about two-thirds of their accounts’ value. This is a common practice to ensure that there is some money left to pay claims against MF Global.

MF Global was also a registered broker-dealer, like Fidelity and Schwab. The future of the securities accounts it held is less clear. Stephen Harbeck, chief executive of SIPC, said he believed there were only 6,000 securities accounts. So far, he said, the trustee had not found another home for them because they did not have a large amount of assets and a trading history. In other words, these accounts may not pay large fees and could be more of a hassle than they are worth to another firm.

Article source: http://feeds.nytimes.com/click.phdo?i=ea56119aaa286e6576230341b5dbe052

Filed Under: Your Money Tagged With: , ,

Economix: Older Workers Without Jobs Face Longest Time Out of Work

May 7, 2011 by Leave a Comment

After reaching record highs month after month, the typical length of time a jobless worker in the United States has been unemployed finally fell in April, to “only” 38.3 weeks. But the outlook is looking bleaker for the nation’s older workers.

Sure, older workers are much less likely to be unemployed than their younger counterparts. Here’s a look at unemployment rates by age:

DESCRIPTIONSource: Bureau of Labor Statistics Note: The figures are presented as a 12-month moving average because not all age groups had seasonally-adjusted data available.

As you can see, the older you are, the less likely you are to be unemployed. The unemployment rate for people over age 65 is about 6.5 percent, taken on a 12-month moving average. The unemployment rate for teenagers is nearly four times that.

But if older workers do lose their jobs, their chances of finding another job are extraordinarily low. Here’s a look at the average duration of unemployment (on a 12-month moving average), broken down by age of the unemployed:

DESCRIPTIONSource: Bureau of Labor Statistics Note: The figures are presented as a 12-month moving average to adjust for seasonality.

The average jobless person over age 65 has been looking for work for 43.9 weeks. For someone between the ages of 55 and 64, the typical duration is 44.6 weeks, just a few weeks shy of a year. The average unemployment spells for both of these groups are at record highs.

The average teenager, on the other hand, has been looking for less than half that time, at 19.9 weeks.

Why are older workers more likely to be stuck in a seemingly eternal jobless limbo?

Some of it has to do with the fact that younger workers are more likely to drop out of the labor force entirely if they are unable to find a job after weeks of searching. Some young workers may go back to school, and some may move in with their parents. Wherever they end up, if they’ve dropped out of the labor force, they’re no longer technically counted as unemployed.

Additionally, older workers are more likely to have been laid off from industries in structural decline. Before the Great Recession, these industries — like manufacturing and newspapers — had probably been trying to shrink through attrition, meaning that they hired fewer young people to replace retiring workers, meaning offices and factories got gradually older. As the economy soured, these employers started resorting to more layoffs.

Now their former employees are structurally displaced, and probably less likely to go back to school for retraining or to move across the country where the job market may be better. After all, older workers are more likely to own their own homes, and so are less mobile.

Finally there is the possibility of age discrimination. Nearly every out-of-work American over the age of 45 I’ve spoken with has complained that prejudice is keeping him or her from getting a job.

Age discrimination is hard to prove, especially since employers are unlikely to inform applicants that age factored into the hiring decision. (Plus, as I’ve mentioned before, young people — and whites, blacks, Asians, Hispanics, women and men — also all seem to think that prejudice explains why they’re out of work.)

In any case these long durations of unemployment for older workers are particularly troubling, since the longer workers are out of the work the less employable they become. Lengthening spells of joblessness therefore do not bode well for the country’s ability to ever get displaced older workers back into gainful employment.

When we talk about the scarring effect of unemployment, we’re usually referring to the scars on young people’s careers. But there is also much to worry about the permanent damage that joblessness can wreak on older workers, many of whom feel they’re being summarily kicked out of the labor force.

Article source: http://feeds.nytimes.com/click.phdo?i=71c62ef0c3c400ba9d0dab668a663a82

Filed Under: Economy News Tagged With: , ,