Bloomberg News

Glencore May Not Need to Raise Xstrata Bid Terms, Jefferies Says

March 02, 2012

Glencore International Plc (GLEN)’s re- weighting in stock indexes in May is likely to boost its shares, reducing the need for the commodities trader to increase its offer for Xstrata Plc (XTA), according to Jefferies Group Inc. (JEF)

An increase in the proportion of Glencore shares available for trading in May as lock-ups dating from its 2011 initial public offering expire will result in its FTSE 100 index weight increasing, Jefferies said. Glencore has offered 2.8 of its shares for each one in Xstrata, valuing the Feb. 7 bid at 23.2 billion pounds ($37 billion) at current prices.

“This increased weighting should be a positive for the Glencore share price as index trackers and active managers who are benchmarked to the FTSE will likely buy the stock ahead of this re-weight,” Jefferies analyst Christopher LaFemina wrote in a report yesterday. “We believe many investors may be underestimating the probability that this scenario plays out.”

The commodities trader has faced calls from Xstrata investors including Schroders Plc (SDR), Fidelity Worldwide Investment and Standard Life Plc (SL/) to increase its bid. Glencore is likely to raise the offer in April by as much as 18 percent to 3.3 of its shares, HSBC Holdings Plc said Feb. 29.

Glencore, which already owns 34 percent of Xstrata, declined 0.8 percent to 423.6 pence at 12:06 p.m. in London. Xstrata, the world’s largest exporter of thermal coal, fell 1.4 percent to 1,195.5 pence. Xstrata yesterday traded as much as 2.5 percent higher than the offer ratio, the largest premium since the bid was announced, according to data compiled by Bloomberg.

‘Negative Consequences’

Glencore’s free float will rise to 52 percent from 20 percent, prompting a proportionate re-weighting in the index, Jefferies said.

“The higher the Glencore share price, the more likely it should be that Glencore can acquire Xstrata without increasing its offer,” Jefferies said. “Glencore may not feel compelled to bump its offer, especially when it knows that there are negative consequences to Xstrata if the deal does not happen.”

Investors holding 16.48 percent of Zug, Switzerland-based Xstrata can succeed in voting to block the deal. That’s because Glencore won’t be allowed to vote its stake in Xstrata, according to the U.K.’s takeover code, putting the final decision into the hands of the shareholders who control the rest of the company.

Jefferies’ base-case assumption is that Glencore will raise its bid to 3 shares for each one in Xstrata, resulting in a “high probability” the offer will succeed, it said.

Xstrata Investor Expectations

Any revision of the terms may be in the range of 3 to 3.3 shares for each one in Glencore, HSBC said. The offer may be formally presented to investors in April followed by a vote in May, it said.

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

“Xstrata shareholders have almost all indicated to us that they do expect Glencore to bump the offer,” Jefferies said. “Xstrata shareholders may have to brace themselves for no bump, with the knowledge that voting down this proposed merger could lead to a correction in the Xstrata share price in the short- term.”

To contact the reporter on this story: Jesse Riseborough in London at

To contact the editor responsible for this story: John Viljoen at

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