Bloomberg News

China Studying Glencore’s Copper Trading Delays $35 Billion Deal

March 05, 2013

Glencore International Plc CEO Ivan Glasenberg

Glencore International Plc Chief Executive Officer Ivan Glasenberg said, “We have been marketing Xstrata tons into China anyway in the past, so it’s not a big increase which is under the control of Glencore.” Photographer: Chris Ratcliffe/Bloomberg

Glencore International Plc (GLEN), awaiting Chinese approval for its $35 billion takeover of Xstrata (XTA) Plc, said the country’s competition regulator is assessing the influence the combined group will have in the copper market.

“We have been marketing Xstrata tons into China anyway in the past, so it’s not a big increase which is under the control of Glencore,” Chief Executive Officer Ivan Glasenberg, 56, said in a phone interview. “The Chinese are sort of getting their grips around it and we will await the outcome.”

Glasenberg is seeking to buy Xstrata to create the world’s fourth-largest mining company by adding coal, copper, nickel and zinc operations to its cotton-to-crude oil trading empire. The biggest publicly traded commodities supplier today extended to April 16 a deadline to complete the deal as it looks to clear the final hurdle for a takeover that after 13 months has won approval in Europe, Australia and South Africa.

“The issue is clearly that China is the world’s largest consumer of copper, so they have a vested interest in it,” Sanford C. Bernstein & Co. analyst Paul Gait said by phone. “If it became necessary to get the deal done, I expect Glencore would be willing to offer some concessions.”

Glencore gained 5.7 percent to 391.2 pence by the close in London, the biggest gain in two months, while Zug, Switzerland-based Xstrata surged 6.8 percent to 1,174 pence, the most in almost six months.

Rusal Impairment

Glencore today reported a 25 percent drop in 2012 net income excluding “significant items” to $3.06 billion on lower prices for its products, according to a statement from the Baar, Switzerland-based trader. That compared with the $3.14 billion mean estimate of five analysts compiled by Bloomberg. Net income fell 75 percent to $1 billion on impairment charges of $1.7 billion, mostly linked to its holding in United Co. Rusal, the largest aluminum producer.

Glencore’s 2012 sales rose 15 percent to $214.4 billion and net debt climbed 19 percent $15.4 billion. Adjusted earnings before interest and tax from its trading division increased 11 percent, while earnings from the industrial division fell 33 percent as average prices for nickel, coal, zinc and copper averaged 10 percent to 20 percent lower.

Takeover target Xstrata posted a 37 percent decline in net income excluding exceptional items to $3.65 billion.

Small Risk

The combined company would be the world’s third-largest producer of mined copper, a metal used in pipes and wires. China’s Ministry of Commerce, or MOFCOM, is responsible for the decision to sign off on the takeover.

“Of course there is uncertainty until the approval is given, but we consider the risk fairly small,” Bernstein’s Gait said. “What would surprise me would be if MOFCOM came to a significantly different conclusion than the European Commission.”

Glencore’s C$6.1 billion ($5.9 billion) acquisition of Canada’s Viterra Inc., completed in December, was delayed as it awaited MOFCOM clearance.

Glencore is in a weekly dialogue with Chinese regulators and Glasenberg believes the deal will eventually be cleared, he said later during a presentation to analysts. The company started talks with MOFCOM in the third quarter last year and they will resume in a few days, he said, adding that he hopes to complete the deal by next month’s deadline.

Discussions are centered around potential remedies and the combined group’s market share, Glasenberg said.

Beijing Appointments

The ruling Communist Party’s omission of Commerce Minister Chen Deming from its new central committee announced in November was a signal that he may be stepping down from the post. The government is expected to appoint new ministers at legislative meetings that opened today in Beijing.

“We do supply a certain amount of copper concentrate to China, so they are looking at that,” Glasenberg told reporters today. “However, there are 20 to 30 different companies supplying copper to China and there are new big mines coming, so we are not really a very big percentage of their imports.”

The world’s biggest mining companies including BHP Billiton Ltd. (BHP) and Rio Tinto Group are selling unwanted assets to help mitigate rising costs and stagnant prices. Glencore will review all the assets in the combined company once the Xstrata deal is completed, Glasenberg said.

“We will be assessing each asset, each project very carefully and deciding whether to maintain, whether to sell, whether to develop,” he said in the interview. “Sure it’s a good opportunity if they do intend selling some of their non- core assets. We will assess them at the time and competition hopefully will be lower than we’ve seen in the past.”

Glasenberg, a 28-year veteran of Glencore and the company’s largest shareholder with a 16 percent stake, took over as CEO in 2002 and has pursued a strategy of growth by acquisition.

“We will grow opportunistically,” Glasenberg told analysts in a presentation today. “We may look at bigger companies as we go forward if we believe we can bring value and it adds to the synergy of bringing the two companies together.”

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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