Glencore International Plc’s Chief Executive Officer Ivan Glasenberg navigated a nine-month takeover of Xstrata (XTA) Plc to emerge with his $31 billion prize, the top job and a chance of selecting the group’s new chairman.
Xstrata investors yesterday also prevented the payment of 144 million pounds ($229 million) by the new company, Glencore Xstrata Plc, as incentives for about 70 managers to remain at what will be the fourth-largest mining group. Chairman John Bond, set for same role post-combination, said he’ll quit after shareholders rejected his board’s call to back the bonuses.
Glasenberg “got exactly what he wanted,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said by phone. “He’s got control, he’s still in charge, running the show and he’s acquired probably the best set of assets on the market.”
Xstrata shareholders voted to approve this year’s biggest takeover, combining the Zug, Switzerland-based company’s coal, copper, nickel and zinc mining assets with Glencore’s cotton-to- crude oil commodities trading empire. The group will represent about 2.12 percent of the U.K.’s benchmark FTSE 100 Index, ranking 13th in the gauge behind BG Group Plc (BG/), according to Liberum Capital Ltd.
While approvals from regulators in Europe, South Africa and China are yet to be obtained, these are unlikely to disrupt the deal, according to Jefferies Group Inc.
The takover is set to win the European Union’s approval after Glencore offered to end a zinc-purchase agreement with Nyrstar (NYR) NV, according to people familiar with the matter. Glencore’s proposal has satisfied EU antitrust regulators and removed the need to sell assets, two people said, asking not to be named because the information isn’t public.
“While investors have been most focused on the EU Commission approval process, regulatory approval from China also remains a relative unknown and a risk,” Jeff Largey, Alon Olsha and Daniel Lurch, analysts at Macquarie Group Ltd., said in a report yesterday. “Conventional wisdom says that both the Chinese and South Africans will likely not block the deal full- stop, but perhaps seek additional concessions.”
Glencore advanced 1 percent to 334.95 pence at 12:40 p.m. in London. Xstrata rose 1.1 percent to 997.5 pence. The ratio of Xstrata shares to those of Glencore rose to a record 2.98 times, indicating confidence among investors that the transaction will be completed.
“Kudos to Ivan Glasenberg and Glencore for navigating this entire merger process so well,” Christopher LaFemina, an analyst at Jefferies, said yesterday. “We would be very surprised at this point if this merger is not a done deal.”
Glasenberg, a former accountant and coal trader, had to raise his all-share offer by 9 percent in September to win support from Qatar Holding LLC, the nation’s sovereign wealth fund. That allowed him to depose long-time rival Mick Davis, CEO of Xstrata, and supplant himself into the top job. Glasenberg owns about 15.5 percent of Glencore and is its biggest shareholder.
“With significant extra volumes through his trading business, he’s catapulted himself into an enviable position as CEO of the fourth-largest mining company in the world,” Sanford Bernstein’s Gait said. “He’s played a blinder.”
Glasenberg took on the position of CEO in 2002 and has built Glencore through a series of acquisitions. The commodities trader sold $10 billion of stock last year in an initial public offering, ending three decades of operating as a closely held partnership.
Gait said he expects the 55-year-old South African to have further merger and acquisition targets, and to consider bidding for Anglo American Plc. (AAL)
“If you wanted to cement your place in mining and corporate history there is one deal that’s still there on the table and that’s Anglo,” Gait said. “I hardly think the quiet life is on the cards” for Glasenberg, he said.
The company could make its first major acquisition in the first or second quarter of next year and “will have the firepower to do big, value-accretive M&A transactions,” Jefferies wrote in a note to clients yesterday. Anglo American, a $38 billion London-based mining company, is vulnerable to a takeover after CEO Cynthia Carroll resigned last month, Jefferies said.
Officials for Glencore, Xstrata and Anglo American declined to comment.
Glencore Xstrata may also seek to buy Eurasian Natural Resources Corp., which has a market value of about $5.6 billion, Jefferies said.
Xstrata shareholders yesterday voted 67.85 percent in favor of a first resolution that included the incentives, falling short of the 75 percent threshold. A second poll in favor of the deal without the bonuses was agreed to by 78.88 percent of shareholder votes. Shareholders voted 78.43 percent to reject the retention bonuses, Xstrata said.
Bond said he will ask the board of the new company to start looking for a new independent chairman of Glencore (GLEN) Xstrata once the takeover is completed.
The combined group will have interests in about 35 coal mines in Colombia, Africa and Australia, and account for about 10 percent of global seaborne exports of the fuel.
It will be the world’s third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of coal burned by power stations. The combined group will have about 11 percent of the 13 million-ton global zinc market and about 40 percent of the 1.9 million tons of the metal produced in Europe.
“In exchange for a very modest bump to 3.05, which we would still argue is a very good ratio for Glencore, Ivan Glasenberg will assume control of the company within six months,” Jefferies’ LaFemina said by phone. “It’s an impressive result so far.”
The two companies have said they expect the transaction to be closed by the end of the year.
Glencore is working with Citigroup Inc. and Morgan Stanley as financial advisers. Xstrata has hired Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc. Qatar Holding is advised by Lazard & Co.
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