Bloomberg News

Glencore Said to Stick to Xstrata Terms Days Before Vote

September 02, 2012

Glencore Said to Stick to Xstrata Offer Terms Days Before Vote

Opposition to Baar, Switzerland-based Glencore’s all-share offer made in February intensified last week when Qatar Holding, owner of 12 percent of Xstrata, confirmed it would vote against the current terms at a vote on Sept. 7. Photographer: Gianluca Colla/Bloomberg

Glencore International Plc (GLEN) is continuting to stick to the terms of a $33 billion bid for Xstrata Plc (XTA), resisting mounting pressure from shareholders to sweeten the offer four days before investors vote, according to a person with knowledge of the matter.

No talks were held during the weekend, and none are scheduled between Glencore and Qatar Holding LLC, the biggest opposing shareholder, according to the person who asked not to be named because the plans are private. If the current proposal fails, executives are considering a structure for a new offer that would be more difficult to block, the person said.

Opposition to Baar, Switzerland-based Glencore’s all-share offer made in February intensified last week when Qatar Holding, owner of 12 percent of Xstrata, confirmed it would vote against the current terms at a vote on Sept. 7. Glencore owns 34 percent of Xstrata and wants the rest of the coal, copper and zinc producer to create the world’s fourth-biggest mining company.

A lack of talks in the final weekend before shareholders vote heightens the risk of the deal collapsing. Under the structure, known as a scheme of arrangement, just 16.48 percent of Xstrata shareholders can block the transaction, and Glencore isn’t allowed to vote its 33.65 percent stake.

New Structure

If the current proposal fails this week, Glencore is considering an option to return with a future offer structured as a more conventional takeover, the person said. That would lower the threshold of acceptances to complete a deal from 75 percent under a scheme of arrangement to more than 50 percent.

Charles Watenphul, a spokesman for Glencore, declined to comment, and an Xstrata spokesman declined to comment. Qatar’s officials weren’t immediately available for comment yesterday.

Glencore’s billionaire chief executive officer, Ivan Glasenberg, 55, is the largest shareholder of the commodities trader with about 15.7 percent. He has repeatedly rebuffed calls to raise his offer. On Aug. 21 he said he was ready to move on from the deal rather than overpay.

An all-stock deal of 2.8 Glencore shares for each one in Baar, Switzerland-based Xstrata’s was agreed to between the two companies in February, with Xstrata’s Mick Davis lined up to be the combined company’s CEO and Glasenberg his deputy and president.

Opposing Shareholders

Knight Vinke Asset Management LLC, the New York-based activist fund, also said last week it intends to vote against the proposal on its current terms. Schroders Plc (SDR) and Standard Life Investments (SLGLDIA) have also said they would vote it down.

The chances of the deal’s success were slipping below 30 percent, Liberum Capital Ltd. said in a Aug. 29 note. The initial offer was made at an 8 percent premium, the second- lowest for any mining deal worth more than $5 billion, according to data compiled by Bloomberg.

Opposition to the bid had grown to about 15 percent of Xstrata investors after the Financial Times reported last month that Norway’s sovereign wealth fund, with 3 percent of Xstrata, planned to block the deal with Qatar, Liberum said. UBS said Aug. 20 it saw a 60 percent chance of the deal being voted down.

Analysts including UBS AG (UBSN), Jefferies Group Inc. (JEF:US), Societe Generale SA (GLE) and Liberum have predicted that Glencore would need to raise its offer to 3 shares to complete the transaction.

Qatar’s Position

Qatar Holding said Aug. 30 that while it supported the deal in principle, it would not vote in favor under the current terms. The fund “believes that Xstrata has a strong future, whether in combination with Glencore on acceptable terms or as a stand-alone entity, and that its shares represent an attractive long-term investment,” it said.

Glencore met with Qatar in late June after the fund said an offer of 3.25 Glencore shares was “more appropriate.”

At the same time, Xstrata moved to defuse objections from its own investors, some of whom criticized the 172.8 million pounds ($275 million) of retention payments it planned to pay 73 of its executives. They include CEO Davis, 54, who stands to receive 28.8 million pounds of shares over three years. The terms of the payments were altered on June 27, linking some of them to performance and converting the bonuses entirely to shares rather than cash.

Xstrata shareholders other than Glencore would hold 45 percent of the combined entity, to be known as Glencore Xstrata International Plc and listed in London and Hong Kong, the companies said in February. Its headquarters would be in Switzerland.

Xstrata is working with Goldman Sachs Group Inc. (GS:US), JPMorgan Chase & Co. (JPM:US), Deutsche Bank AG and Nomura Bank International Plc as financial advisers. Glencore, which had agreed to pay Xstrata a so-called break fee of 298 million pounds should it withdraw the offer, tapped Citigroup Inc. (C:US) and Morgan Stanley. (MS:US) Qatar Holding has been advised by Lazard Ltd. (LAZ:US)

To contact the reporter on this story: 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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