Bloomberg News

Xstrata Holder Knight Vinke Seeks Higher Glencore Offer

July 03, 2012

Glencore Comes Under Pressure

The logo of Xstrata Plc is displayed outside the building that houses the company's headquarters in Zug, Switzerland. Photographer: Gianluca Colla/Bloomberg

Xstrata Plc shareholder Knight Vinke Asset Management LLC joined Qatar Holding LLC in stepping up pressure on Glencore International Plc (GLEN) to improve the terms of the year’s biggest takeover.

Glencore needs to increase its bid by 16 percent to combine with Xstrata, said Knight Vinke, which holds about 0.5 percent of Xstrata according to data compiled by Bloomberg.

“An exchange ratio of 3.25 would represent more appropriate terms” as Glencore’s February offer of 2.8 of its shares for each of Xstrata’s doesn’t represent fair value and doesn’t include a premium to reflect the change of control, Knight Vinke said in a letter today.

Knight Vinke unlocks “value by engaging both in private and in public with the management, board and advisors,” according to its website. In the past two years the New York- based activist shareholder has written public letters to management of the world’s second-largest retailer Carrefour SA and Italian energy company Eni SpA (ENI) to push its views. It has previously led campaigns to boost value at companies such as GDF Suez SA, Electrabel SA, Royal Dutch Shell Plc (RDSA), Kesa Electricals Plc and HSBC Holdings Plc.

Standard Life Plc (SL/) and Schroders Plc (SDR) have also called for the initial bid to be sweetened. Knight Vinke’s stance takes those opposed to the terms to more than 14 percent of Xstrata shareholders.

Blocking Vote

Only 16.48 percent of shareholders’ votes are required to block the 16.6 billion-pound ($26 billion) so-called merger of equals as U.K. takeover rules prevent Glencore from voting its 34 percent stake in Xstrata.

Qatar, which spent $4 billion amassing an 11 percent Xstrata stake, on June 26 asked Glencore to raise its bid from 2.8 to 3.25. Glencore and Qatar advisers are meeting over the valuation, people familiar with the talks said. Disquiet among some shareholders over the deal intensified after Xstrata said it planned to pay top executives 172.8 million pounds in bonuses for their loyalty.

“Our concerns were exacerbated by the proposed management retention packages which, even as amended, represent a premium being paid to Xstrata management which is unavailable to shareholders,” Knight Vinke said. “We intend to vote against the current proposals.”

Glencore and Xstrata declined to comment when contacted by Bloomberg. Xstrata rose 0.3 percent to 805 pence at the close in London while Glencore added 1.8 percent to 304.5 pence.

Bonuses Changed

Xstrata on June 27 tied bonuses for its most-senior executives for staying on at the company to cost-savings targets and made all bonuses payable in shares after some holders attacked them as excessive.

“We wrote to the board of Xstrata outlining this view in February 2012 and have met with management of both companies, as well as Xstrata non-executive Board members and advisers,” Knight Vinke said. “We have also spoken to a large number of fellow shareholders and we believe that many share the view that this transaction does, indeed, constitute a change of control. It is our belief that any such change of control should be accompanied by an appropriate premium being paid to shareholders for that control.”

Both companies will set new dates for shareholder votes on the transaction originally scheduled for July 11 and 12. Xstrata (XTA) on June 27 said it expects the deal to be completed in early October. The companies had originally targeted the third quarter.

Proposed Split

Glencore, the commodity trader based in Baar, Switzerland, is seeking to add Zug, Switzerland-based Xstrata’s copper, coal and zinc operations to its businesses. The takeover is the largest announced deal so far this year, according to data compiled by Bloomberg.

In a letter to the Financial Times last year, Knight Vinke said Glencore should consider splitting its mining and trading units ahead of a possible merger with Xstrata.

“A merger of Xstrata with Glencore’s mining business (without its trading activities) would at least have the merit of being easier to value and would create a true competitor for the likes of BHP Billiton, Rio Tinto and Anglo American,” it said. “It would also remove some of the issues concerning management and governance.”

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

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


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