Bloomberg News

Glencore’s Glasenberg Gets Back to His Marc Rich Trading Roots

February 08, 2012

(For more on Glencore-Xstrata, see EXT2 <GO>)

Feb. 8 (Bloomberg) -- Just eight months after taking Glencore International Plc public in a $10 billion stock offering, Ivan Glasenberg is stepping aside as chief executive officer to go back to his trading roots.

Yesterday, Glencore agreed to buy Xstrata Plc for about 24.3 billion pounds ($39 billion) in what would be the biggest takeover ever in the mining industry, should the deal be approved. Xstrata CEO Mick Davis will lead the combined company focusing on its assets, which range from African copper mines to Russian oil wells. Glasenberg, the largest shareholder with an 8.8 percent stake, will become deputy CEO and president and run the trading operations, traveling to meet customers and looking for new business opportunities.

The question on many people’s minds, though, is why one of the wealthiest, most powerful and most secretive players in the high-stakes commodities trading game would seemingly step aside and relinquish his CEO post at the very moment of his greatest triumph? Glasenberg says he’s doing it to get back to what he loves most about the business, acknowledging that his strengths lie in buying and selling commodities rather than leading a public company.

“The trading side of the business means a lot of travel, being out of the office a lot of time,” Glasenberg said yesterday at an investor presentation in London. “Mick running the company, being CEO of the company, does release a lot of pressure from me to do more of what I do best.”

Price-Taking

While Glencore operates mines and smelters around the world, it also supplements that flow of commodities by trading with 8,000 other suppliers. From its trading offices around the world, Glencore gathers information on its markets and moves cargoes by ship and rail to arbitrage prices at different locations.

This is the commodities-trading world that Glasenberg has been immersed in for almost the past 30 years. During that time he has bet on coal and other commodities, buying mines and smelters during the 1990s when the industry was out of fashion and reaping the benefits in the last decade as demand from the developing world sent prices on a tear.

Davis, meanwhile, has run Xstrata more akin to BHP Billiton Ltd. and Vale SA, the world’s largest mining companies, by focusing on extracting raw materials in the most efficient manner and taking the market price. Industry followers generally endorse the change in role and say it plays to both men’s strengths.

Marc Rich

“Davis has a way in dealing with investors and the City which is engaging and openly charming,” says Charles Cooper, an analyst at Oriel Securities Ltd. in London. “Ivan comes in a bit more defensive. That’s perhaps because of the culture of not having to explain the mechanics of his business to the outside world until recently.”

Simon Buerk, a spokesman for Baar, Switzerland-based Glencore, declined to comment.

Returning to trading would be something of a homecoming for Glasenberg, who started out 28 years ago on the coal desk of Marc Rich & Co., the trading firm founded by former fugitive U.S. financier Marc Rich. Glasenberg, 55, was part of the 1994 management buyout from Rich and was instrumental in pursuing a strategy of buying mines, smelters and refineries that produced the commodities it traded. He led Glencore to the world’s largest initial public offering last year, ending 37 years as a closely held firm.

Metal Acquisitions

“We’re talking to every third-party supplier every day of the week and our traders are talking to them and buying products from them,” Glasenberg said yesterday. “When we’re doing that, we see opportunities which no one else sees.”

Glasenberg was born in South Africa and grew up in Johannesburg. He graduated in 1981 from the University of the Witwatersrand with a degree in accounting and earned his accounting certification at Levitt Kirson. He then enrolled at the University of Southern California, where he earned a master of business administration degree in 1983.

The following year, he joined Marc Rich & Co., working in the company’s coal department in South Africa for three years and then in Australia for two. Following stints in Hong Kong and Shanghai, he moved to Switzerland and in 1991 became head of the firm’s coal unit.

By that time, the company was already augmenting its trading business with industrial assets, having started with a stake in a U.S. aluminum plant in 1987. Glasenberg led efforts to acquire coal mines.

‘Tough Period’

Glasenberg was part of the management team that bought out Marc Rich & Co. in 1994, changing its name to Glencore. At that point, Glasenberg reported to the new CEO Willy Strothotte.

Strothotte and Glasenberg working together proved a potent combination. Over the next decade they expanded Glencore’s portfolio of assets, adding coal in Australia, a U.S. aluminum smelter and a Philippine copper plant.

“That model, no one can deny, Ivan and Willy were the first to really pick it,” Andrew Michelmore, CEO of Chinese miner Minmetals Resources Ltd., said in an interview last year just before the IPO. “The ‘90s were a tough period where the minerals industry was regarded as a smokestack industry.”

Glasenberg made the most of a tough situation, opportunistically going after troubled companies, even as Glencore faced challenges of its own. Eventually, he rose to CEO.

‘Dinosaurs’ Ousted

“It was always clear that this guy was going to eventually replace Willy,” said Michael O’Keefe, a former Glencore managing director who later served as executive chairman of Australia’s Riversdale Mining Ltd.

O’Keefe, who worked for Glasenberg in Melbourne, remembers him forcing out the “dinosaurs” at the company’s Australian operation.

“He was always very focused on who’s contributing what to the business,” O’Keefe said in an interview last year.

A string of deals saw Glencore become the world’s largest shipper of coal used by power stations. A plan to spin off the coal unit was scrapped after the 9/11 terrorist attacks and Glencore instead sold the coal assets to Davis at Xstrata, in which Glencore at the time had a stake of about 40 percent.

In 2002, Glasenberg succeeded Strothotte, just as China was embarking on a decade of economic expansion that would make it the largest user of metals and drive commodities prices to records. By 2007 Glencore’s annual net income had swelled to $1.11 billion on revenue of $142.3 billion. The bankruptcy of Lehman Brothers Holdings Inc. the following year and the global recession saw commodity prices plunge.

Crisis Survival

To survive the crisis, Glasenberg cut production and halted some projects, according to the company’s IPO prospectus.

“Some of the rumors that were running around were that they had run out of debt facilities and they were cash- strapped,” Michelmore said.

Even after commodity prices had crashed, Michelmore says Glasenberg was looking for deals. Michelmore, who at the time was running cash-poor Australian miner OZ Minerals Ltd., found himself face to face with the Glencore boss trying to sell a mine so that he could refinance debt.

“There was Ivan, and he and I were negotiating on a deal right in the middle of this,” Michelmore said. “He was seeing opportunities in that market even though he and their business were under huge pressure.”

Kloppers Friendship

Glasenberg, who was once an Olympic-standard competitive walker, runs each day and competes in triathlons. He’s friends with fellow South Africans Davis and BHP Billiton CEO Marius Kloppers.

The challenge for Glasenberg and Davis will be sorting out their new roles in way that benefits the company and works for both them.

“There are some tensions there” said Ian Henderson, a fund manager at JPMorgan Chase & Co. in London. “There’s no doubt about it when you get two individuals with a great a deal of skill and history having to work alongside each other it only works if both parties work hard at it.”

--With assistance from Firat Kayakiran in London, Elisabeth Behrmann in Sydney and Liezel Hill in Toronto. Editors: Rick Schine, Andrew Hobbs

-0- Feb/08/2012 16:01 GMT

To contact the reporters on this story: Simon Casey in New York at scasey4@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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