March 22, 2023

DealBook: Glencore Increases Offer in Bid to Secure Xstrata Deal

12:32 p.m. | Updated 9:28 a.m. | Updated

LONDON — Glencore International, the world’s biggest commodities trader, sweetened its offer for Xstrata in a last-minute bid to save the mega-merger with the large mining company.

The commodities trader is trying to win over investors. In recent months, the second-largest Xstrata shareholder, Qatar Holding, the sovereign wealth fund of the Persian Gulf nation, threatened to block the deal unless Glencore raised its bid.

Under a new proposal, Glencore offered 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. For months, Qatar Holding, which owns 12 percent of Xstrata, had held out for a ratio closer to 3.25.

While upping the price, Glencore also added conditions to the deal. Under the new 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.

Glencore also wants the option to restructure the deal as a takeover, rather than a merger. By doing so, the company would only need 50 percent of Xstrata investors to approve the deal. Glencore, which owns roughly 34 percent of Xstrata, could also vote its shares. As a merger, Glencore would need 75 percent of the shares and would have to sit out the vote, making it more difficult to get approval.

“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.

But it’s not clear whether the new terms will appease Xstrata shareholders.

On Friday afternoon, Xstrata said it was awaiting more details, saying the new Glencore proposal “lacks sufficient information on key elements.” The mining company raised some initial objections, saying the new ratio of 3.05 Glencore shares for each Xstrata share implied a premium that “is significantly lower than would be expected in a takeover.”

Xstrata said the ratio of 3.05-to-1 would constitute a 22.2 percent premium to its closing price on Thursday. In 35 proposed mining deals over the eight years to 2011, the weighted average premium paid was 31 percent, according an HSBC report published in February.

Xstrata also highlighted the “significant risk” of Mr. Davis and his management team leaving the new company. Glencore-Xstrata would derive most of its earnings from mining, but it would now potentially be run by Glencore executives, who have been focused on commodities trading.

An Xstrata representative did not specify the date of a new shareholder vote on the deal.

The two sides have been at a stand-off for months.

After going public last year, Glencore moved quickly to strike a deal with Xstrata. The merger seemed natural because the two companies have been deeply intertwined for years.

But Xstrata shareholders balked at the price, with Qatar leading the push. After a multibillion-dollar spending spree, the sovereign wealth fund increased its stake in Xstrata to 12 percent, gaining more sway in the fight.

Glencore seemed unwilling to budge. Last month, Mr. Glasenberg said that it would be “no big deal” if the merger failed. He had held firm in public that no change of terms would be forthcoming and suggested that Glencore could make a new offer for Xstrata next year.

As the fight dragged on, the broader commodities business started to falter. Metal prices have fallen sharply this year, hurting Xstrata’s earnings, which fell 33 percent in the first six months of the year.

The new proposal came together at the 11th hour.

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

“This is all about face-saving,” the banker said. A 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.

Simon Murray, Glencore’s chairman, adjourned the Glencore shareholder meeting shortly before it was due to begin on Friday morning in Zug, Switzerland. Developments “happened very recently overnight,” Mr. Murray told shareholders who had gathered for the vote.

While Qatar 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.

“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 criticized the deal, calling the earlier offer “inadequate.”

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