By Una Galani and Chris Hughes
LONDON, March 7 (Reuters Breakingviews) - John Bond isn't everyone's idea of a shareholder champion. But his coming appointment to the chair of Xstrata sends a welcome signal that the mining group realises it must act in the interests of all its investors, and not just for top shareholder Glencore.
The outgoing chairman of Vodafone and former chief executive of HSBC will take over from Willy Strothotte, who is currently chairman of Glencore and one of two directors that the giant commodities trader nominates to Xstrata's board by virtue of its 34 percent stake.
The question for Xstrata investors is how they might fare in any combination with Glencore following its possible $60 billion initial public offering this year. A merger would generate synergies. But Xstrata, valued at $68 billion, is understandably concerned about how value might be shared. Strothotte would have been conflicted in judging that issue. One reason Glencore is mulling a float is that Xstrata's chief executive, Mick Davis, recognised shareholders' concerns that it should establish a market value before there could be any deal. After all, Glencore's giant and opaque trading business doesn't have any obvious listed peers.
Xstrata shareholders would not want a cosy deal that saw them give away control for no premium.
They would also need satisfying that the changed profile of the enlarged group -- Glencore takes principal risk in its trading operation -- is acceptable. Governance would also be a concern: it's not clear how Davis and Glencore's CEO, Ivan Glasenberg, could both land suitable roles in the company without one becoming chairman in contravention of strict governance best practice.
In turn, this raises the question of whether other M&A options -- Xstrata has pursued a deal with Anglo American before -- offer a better balance of risk and reward. Glencore's blocking stake may make such considerations seem academic. But Bond has a real job defending Xstrata shareholders' interests here.
Fortunately, Bond is both independent and has a reputation to protect. His recent five-year tenure at Vodafone wasn't always the most harmonious but during his time there the mobile operator outperformed rivals to deliver an annual return of around 14 percent. He's had his run-ins with investors. Xstrata could be a chance to show he's really on their side.
CONTEXT NEWS
-- Xstrata announced that Willy Strothotte will retire as chairman at the miner's annual general meeting on May 4 to be replaced by Vodafone chairman Sir John Bond.
-- Strothotte is also chairman of Xstrata's biggest shareholder Glencore. The world's largest commodity trader is considering a possible stock market listing this year that could value it at about $60 billion.
-- Glencore has lined up one-time BP executive Rodney Chase as chairman, the Sunday Times reported at the weekend.
-- Strothotte has chaired Xstrata since 1994 and led the company through its initial public offering (IPO) in London in March 2002. -- Xstrata statement:http://www.xstrata.com/media/news/2011/03/07/0800CET/
((una.galani@thomsonreuters.com))
(Editing by Chris Hughes and David Evans)
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Glencore, the Swiss commodity trader, floated in London and Hong Kong in May. Its London-listed shares, which were priced at 530 pence, closed on Oct. 10 at 424.65 pence. The 20 percent fall contrasts with a 33 percent drop over the same period in Xstrata, the miner in which Glencore holds a 34 percent stake.
Credit Suisse highlighted the potential for a merger given Xstrata’s underperformance in a research report on Oct. 10. “We believe Glencore sees strong benefits to a deal and a combination would create an attractive high growth and differentiated major. The longer the relative rating gap exists, the greater the market’s focus on a potential transaction will likely become,” the bank’s mining analysts wrote.
Glencore Chief Executive Ivan Glasenberg told the Financial Times in April that there were “a lot of benefits and synergies” in putting the two companies together but that Xstrata “seems more comfortable for Glencore to go public and get a market price before they may or may not enter into discussions”.
A month earlier, according to an HSBC note, Xstrata Chief Executive Mick Davis told analysts that independent listings for the two companies were “unsustainable in the longer term”.
Mettle and mining
Glencore resilience brings Xstrata deal closer
11 October 2011 | By Quentin Webb
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Mining M&A’s clearest fantasy deal just moved closer to reality. For years, Glencore has coveted full ownership of Xstrata, its mining affiliate with market value of $43 billion. A tie-up has long made sense, and looks easier to pursue after the commodity trader’s shares outperformed in the recent market rout. But Xstrata investors will rightly expect a chunky premium to sell Glencore the 66 percent of the company it doesn’t already own.
Despite lingering 20 percent below its May float price, Glencore’s stock has outpaced its Zug sister’s by about 20 percent, and was a rock compared to global miners in the most recent turmoil. The resilience contrasts with a nasty credit-market wobble in 2009 and has bolstered Glencore’s argument that its business is more stable than pure mining.
The biggest draw of a tie-up would be selling more of Xstrata’s production, especially in copper, coal and zinc, through Glencore’s world-leading trading arm. Synergies after tax could reach $475 million, or about 3 percent of combined 2012 net income, on Credit Suisse estimates. Based on Oct. 5 prices, the Swiss bank reckons those synergies could allow Glencore to pay a 42 percent premium in an all-share deal, without destroying value – although a subsequent Xstrata rebound will have cut this. A partly cash deal could be even richer, and might be more palatable to Xstrata shareholders.
A stock-market re-rating is also possible, but far from certain. Glencore may suffer less of a “conglomerate discount”, but this may be offset by de-rating pressure given the dilution of trading with more exposure to mining. Ivan Glasenberg, the chief executive synonymous with Glencore, would surely keep the helm of an enlarged company. It’s hard to see what other job Xstrata CEO Mick Davis would want, and where he would fit in. But Xstrata’s heavyweight chairman, Sir John Bond, would be useful to retain.
Xstrata shareholders won’t roll over. They know their stock is volatile, with a “beta” far above rivals. That means it has lots of potential for rebounding after hitting two-year lows recently. And they would also be justified in wanting Glencore to have a longer public track record, noting that Glencore’s resilience is also partly thanks to factors such as its small free float and lock-ins that will in time expire. Glasenberg’s negotiating stance has improved – but he doesn’t have the upper hand yet.
===========UPDATE 2-Glencore, Xstrata turn to trusted banking starsThu, Feb 02 12:47 PM EST* Xstrata and Glencore teams may earn up to $70 mln each* Both companies have retained traditional firms* Deal fees lower due to Glencore's existing stakeBy Victoria HowleyLONDON, Feb 2 (Reuters) - An elite club of bankers traditionally close to London's mining companies stand to earn their firms a share of a $140 million fee pot if the proposed merger between Glencore and Xstrata succeeds.Banking teams advising Glencore Chief Executive Ivan Glasenberg and Mick Davis of Xstrata can expect payouts of between $50 million to $70 million, according to estimates from Thomson Reuters and Freeman Consulting, for helping their clients pull off the industry's biggest deal to date.If they fail to gauge a merger premium that will win over Xstrata's full shareholder register, however, they will receive only 10 percent of the potential revenue.Glencore already owns 34 percent of Xstrata, which means less work for the advisers, but has also capped potential fees 20 to 30 percent lower than an average deal of this size.Mining group Xstrata and Glencore, the world's largest diversified commodities trader, are in talks over an all-share deal that would create a group worth 50 billion pounds ($79.10 billion).Both sides have called in tried and tested advisers, who have worked closely with them over the years, sometimes at the expense of lucrative business from the other company.Glasenberg has called on Citigroup and Morgan Stanley , people familiar with the matter said, two of the bank's that led Glencore's $10 billion IPO in May, which yielded about $300 million to $400 million for advisers involved.Credit Suisse, also a top bank on the IPO, may be added to the roll call at a later stage, but does not yet have a role, the people said.Citi's contingent is expected to include David Wormsley, the senior UK banker best known for his court battle with Guy Hands over the private equity firm's controversial purchase of music group EMI.Michel Antakly, who advised Alcan on its 4.3 billion euro ($5.66 billion) takeover of Pechiney in 2003 and worked on Arcelor's defense in 2006 against Mittal, will play a pivotal role at Morgan Stanley.TEAM XSTRATAXstrata's Davis has compensated Deutsche Bank, Goldman Sachs and JP Morgan for missing out on a slice of the Glencore IPO fees last year.All three are major players in equities capital markets but could not take part in Glencore's listing because they were so close to Xstrata.Nomura is also working for Xstrata via a team led by joint investment banking head William Vereker. Vereker advised Brazil's Vale on its failed attempt to buy Xstrata in 2008, when he was with Lehman.Deutsche Bank and JP Morgan are Xstrata's longstanding corporate brokers and have counselled Davis on almost every major deal or fundraising.Ian Hannam is a main contact at JP Morgan, while natural resources head Nigel Robinson will play a key role for Deutsche.Robinson was also one of the bankers involved in the $41 billion deal that created ArcelorMittal, as well as Xstrata's $18 billion dollar acquisition of Falconbridge.He left Goldman Sachs to join Deutsche in 2007, the opposite career path to Brett Olsher, who left Deutsche to become a partner at Goldman in 2010.====================Fiery CEOs may clash in Glencore-Xstrata talksThu, Feb 02 12:07 PM EST* Jostling likely over management in combined firm* CEOs Glasenberg and Davis are competitive South Africans* Men have long relationship punctuated by tensionBy Eric OnstadLONDON, Feb 2 (Reuters) - As a tie-up between trader Glencore and miner Xstrata is hammered out in coming days there is plenty of scope for hard bargaining between the two sides' highly competitive South African bosses.Glencore's Ivan Glasenberg and Xstrata's Mick Davis -- both hard-driven, keen sportsmen who climbed the corporate ladder in the South African coal industry -- have had a close and sometimes tense relationship for more than a decade.Glasenberg hand-picked Davis to run Xstrata 11 years ago. Xstrata floated in 2002, after buying up key Glencore coal assets, leaving the trader with a 34 percent stake."They clearly have a history together, as do Xstrata and Glencore, and I would expect nothing less than that they try to drive the best bargain for their shareholders," said analyst Jeff Largey at investment bank Macquarie in London.One key element of Glencore's move on Xstrata -- which is being billed as a "merger of equals" -- is who gets to run the enlarged trader and miner.The new company will get the bulk of its revenue from mining, leaving Davis as the obvious choice for the top job, while others point out that Glasenberg, who has said he does not plan to sell shares, is unlikely to step aside.This has left some skeptical about whether the two brash characters would be able to work together in a combined company."I don't think both will stay in a fully merged entity. Both have made so much money and I would not be surprised if one of them goes," said a senior investment banker familiar with the mining sector. "Mick is more likely to be the one that moves."Glasenberg is a billionaire, owning 15.8 percent of his company, while Davis regularly heads UK executive pay lists with his multi-million dollar earnings."It's hard to say how it would actually shake out, but both of those gentlemen bring certain skillsets to the table," Macquarie's Largey said. "If I was a shareholder in a combined entity I would like to think that they're both involved for at least a certain period of time."Xstrata Chairman John Bond is expected to play a key role in negotiations and could be brought to chair the new group. Glencore's chairman, Simon Murray, has had a troubled nine months and would not be expected to remain, some analysts say.MUCH IN COMMONGlasenberg and Davis have much in common.Both are in their mid-50s, come from mineral-rich South Africa and have powerful personalities.And both are driven by deals.Davis, however, is nicknamed "Big Mick" for his beefy frame and six-feet two-inch height. Glasenberg by contrast is medium height and wiry.The fact that Davis was hired by Glasenberg has coloured their relationship, said one source who knows the Glencore CEO."There's a sense at Glencore that Mick wouldn't be where is today without Ivan, who chose him ... He owes it all to Ivan," the source said. "At the same time, lots of people at Xstrata felt they were bullied by Glencore."Industry sources and analysts say the two are committed professionals and would not allow any personal tensions to obstruct a deal that would benefit shareholders.On the other hand, both are well known to drive a hard bargain and will not easily give in.The relationship became fraught during the 2009 downturn when a debt-heavy Xstrata launched a rights issue, finding Glencore lacking the cash to take up its portion. Instead it agreed to contribute its prized Columbian coal operations.Negotiations were tough and Davis ended up forcing Glasenberg to sharply lower his valuation for the Prodeco coal assets he contributed.Both men, known for 70-hour work weeks and heavy travel schedules, showed ambition in their early professional lives after training as accountants in their homeland.Glasenberg, known for both his fiery temper and his charm, joined Glencore as a coal trader in South Africa in 1983 and climbed via jobs in Australia, Hong Kong and Beijing before becoming chief executive in 2002.Davis became finance director of South African utility Eskom at 29 but quit when he was overlooked for the CEO post. He was an executive for Billiton before it merged with BHP.Glasenberg is a former South Africa and Israel champion race walker and insists on a daily run or swim to keep fit. Davis is a cricket fan, likely to slip references to the sport into any speech.====================Xstracting a premium02 February 2012 | By Hugo Dixon, Quentin WebbIvan Glasenberg, the Glencore boss, has coveted Xstrata for years. Now the near-$90 billion merger is virtually in his grasp. But how big a premium can he afford to pay and still create value for his own shareholders?================Might work outGlencore-Xstrata would be big, and perhaps better02 February 2012 | By Edward HadasA merger of Glencore and Xstrata might sound like a natural. The two companies are about the same size, are in roughly the same businesses and have an equity tie – the Swiss-headquartered trader-miner Glencore owns 34 percent of the Swiss-headquartered miner Xstrata. They both have outspoken and ambitious South African chief executives, Ivan Glasenberg at Glencore and Mick Davis at Xstrata.There is also some real industrial logic. Glencore’s mines would have added 25 percent to Xstrata’s operating profit in the first half of 2011. The extra bulk might push the combined company firmly into the top league of global miners, along with BHP Billiton, Rio Tinto and Vale. Scale helps in mining: the existing three big global players can more easily afford to take on the risks that come with huge investment projects. Second-tier companies can end up fighting over second-rate assets.Trading, Glencore’s traditional business, would account for about 20 per cent of the combination’s operating profits. It could benefit from the additional supply of raw materials provided by Xstrata, and in turn offer its market insights to a broader mining operation.Still, the case for a divorce – the sale of Glencore’s 34 percent holding of Xstrata – might be as strong as the case for marriage. To start, even if executive roles can be agreed to get a deal done, it will be hard to keep Davis and Glasenberg under one corporate roof - and a shame to lose either of them.There could also be a clash of businesses cultures. Investing in mines requires long-term thinking about many things – politics and the environment as well as geology and prices. Logistics and trading require just as much intelligence, but the timescale is shorter and the mindset is quite different. Few companies have managed to combine the two successfully.In 2009, Xstrata proposed a different merger of equals, with Anglo American. That combination, rejected by Anglo, would have created a bigger miner than the one currently under consideration, and would probably have raised fewer cultural challenges. If Davis didn’t already have Glencore as Xstrata’s biggest shareholder, it’s not obvious he would be so open to its overture.================Merged Glencore, Xstrata would take aim at iron oreFri, Feb 03 11:22 AM ESTBy James ReganSYDNEY (Reuters) - An $80 billion marriage of commodities trader Glencore and miner Xstrata could lead to a new round of takeovers in iron ore, creating a goliath eager to muscle its way onto one of mining's richest and most closely guarded sectors.Glencore and Xstrata, which have yet to reach a deal, would together rank as the world's largest thermal coal exporter, the largest zinc producer and third-largest copper miner - but would remain all but non-existent in iron ore mining.Xstrata wants to get into iron ore, underlined in 2009 by its attempt to buy mining giant AngloAmerican. But it has been thwarted by a scarcity of major new discoveries and a virtual oligopoly(ol·i·gop·o·ly (ŏl'ĭ-gŏp'ə-lē, ō'lĭ-) n., pl., -lies.A market condition in which sellers are so few that the actions of any one of them will materially affect price and have a measurable impact on competitors.) among mining giants Vale, Rio Tinto and BHP Billiton, which have no intention of loosening their grip, say industry players and analysts."With a fortified balance sheet thanks to Glencore, it's a logical move for Xstrata which should light a fire under the others, like Vale," said an Australian mining executive who asked not to be named.Iron ore sells for around $140 a tonne to China, the world's top buyer of the steel-making commodity thanks to the mass urbanization underway there, and only costs about $20-$30 a tonne to mine.Australia alone provides almost half of China's iron ore imports, with BHP Billiton, Rio Tinto and Fortescue Metals Group the main suppliers."There is no doubt Xstrata would like to do more in iron ore but if they want to be big they have to buy a big player," said Macquarie steel and iron ore analyst Colin Hamilton.Xstrata is considering an all-share merger of equals with Glencore, which would leave the new entity with low enough debt to fund a big push into iron ore, including possible acquisitions in competition with the likes of big miners Vale, Rio and BHP."They know they need to bulk up and bulk up real fast to close the gap on the top three. Iron ore is an obvious area," a resources banker said. He declined to be identified as he is not authorized to speak to the media."For starters they don't have a presence, so expect one bolt on to start with, followed by an audacious large one if the markets support one," the banker said.For its part, Glencore's iron ore marketing business has soared since it was launched in 2008 and it has carved out a growing share of the market.Last year was a boom for mining acquisitions - $98 billion worth, the largest since 2007 - but the Glencore-Xstrata deal, valued at $80 billion, would be the biggest since Rio Tinto bought Alcan in 2007.Rio de Janeiro-based Vale failed to buy Xstrata in 2008 for an estimated $90 billion."It makes sense because if you want to hit the industrialized commodity suite, you've really got to be across both the bulks and base metals," said Australia & New Zealand Bank analyst Mark Pervan.In Australia's Pilbara iron belt, the holy grail of iron ore deposits due to its rich lodes, fast-growing miners such as Fortescue, Atlas Iron, BC Iron and Aquila Resources (AQA.AX) may be in their sights.The Pilbara is also closer to China, the world's largest iron-ore consumer, than key sources of high-grade ore in Brazil and Africa, giving it an advantage on shipping costs and times.Steelmakers would certainly welcome a new iron ore player that could challenge Vale, BHP Billiton and Rio Tinto which, they feel, have too much power when it comes to iron ore price.The "big three" together account for about 70 percent of the global seaborne iron ore trade.
In order to become a significant player in the iron ore market however, Xstrata and Glencore would have to move quickly, as the big three are also expanding their iron ore mining activity."They should rely on a combination of takeovers and new projects development," said Meps iron ore analyst Kaye Ayub."New projects are expensive to get going and it takes time to take them to fruition so a mixture of the two would be a better way to expand."STIFF COMPETITIONXstrata's stiffest competition for iron ore mines could come from Vale, the world's biggest iron ore producer. Vale mines about 300 million tonnes a year in Brazil and accounts for more than a quarter of world sea-borne exports. Australian assets would help it cut shipping costs to China, its main market, and better compete with BHP Billiton and Rio Tinto.Vale already operates in partnership with Aquila in coal mining and has been long-rumored to be interested in Aquila's as-yet undeveloped West Pilbara iron ore project. Aquila holds 50 percent of the project, which will cost an estimated $6 billion to develop. Privately held American Metals and Coal International owns the other 50 percent.Competition may also come from China itself.Steel makers in China have been scouring the globe for their own iron ore mines in South America, Africa and Australia, with third-biggest mill Wuhan Iron and Steel vowing to become self-sufficient by 2015.Under a merged entity, Glencore's mines would have added 25 percent to Xstrata's operating profit in the first half of 2011.The extra bulk might push the combined company firmly into the top league of global miners. Scale helps in mining, making the risks that come with huge investment projects more affordable.If Xstrata's attempt to acquire AngloAmerican in 2009 had succeeded it would have immediately made the Swiss-based company number 5 in the highly profitable seaborne-traded global iron ore market.But the collapse of talks with AngloAmerican left Xstrata with little in the way of iron ore holdings.In 2011 it paid A$532 million for Mauritania iron ore prospector Sphere Minerals and owns 50 percent in the Zanaga iron ore prosect in the Republic of Congo.In June, Xstrata started exporting iron ore concentrate as by-product from a copper mine in Australia at the modest annual rate of 1.2 million tonnes, its only source and a pittance by global standards."Obviously the company (Glencore) must believe strongly that the commodity cycle has bottomed and that China's economy is in for a better-than-expected landing, hence their takeover bid being launched now," said Fat Prophets mining analyst Angus Geddes.Some analysts say it might be risky at this stage to go big on iron ore amid signs Chinese demand growth is slipping."We are seeing early signs of iron ore demand decreasing so it doesn't make sense to engage on greenfield expansion for iron ore right now," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong."From 2003 to 2011, we have seen the demand growth peak in iron ore and with more mines coming onto the market in 2014 or 2015, there may be an oversupply," he said.(Additional reporting by Manolo Serapio in Singapore, Narayanan Somasundaram in Sydney, Jeb Blount in Rio de Janeiro and Silvia Antonioli in London; Editing by Neil Fullick and William Hardy)==================Glencore, Xstrata hammering out final deal detailsSun, Feb 05 09:50 AM ESTBy Clara Ferreira-Marques and Victoria HowleyCAPE TOWN/LONDON, Feb 5 (Reuters) - Top executives at trader Glencore and miner Xstrata are hammering out the final details of an $80 billion tie-up to seal the industry's largest ever takeover, which could be announced as early as Tuesday.Xstrata, in which Glencore already has a 34 percent stake, announced last week it had been approached by the world's largest diversified commodities trader and was in discussions over an all-share "merger of equals", a deal that would be the largest in the sector since Rio Tinto's takeover of Alcan in 2007.The agreement is set to be announced this week, potentially Tuesday, when Xstrata is due to publish 2011 results.One source involved in the proceedings described the mood behind the scenes over the weekend as "constructive", and others said brushed off concerns the latest round of talks would collapse over either of the two hurdles that have tripped them up in the past -- governance and price.The two groups, which restarted discussions before Christmas after years of on-off talks, have reached a preliminary understanding on the structure of the top management, according to sources familiar with the deal, with Xstrata expected to take a majority of seats on the board, to keep its chairman, City heavyweight John Bond, as well as its chief executive, Mick Davis, and its chief financial officer, Trevor Reid.Glencore Chief Executive Ivan Glasenberg, who will be the largest single shareholder in the combined mining and trading entity, is expected to hold a deputy position.Davis, who has been at the helm of Xstrata for a decade, is expected to receive an up to 10 million pound ($16 million)retention package in the event of "change of control", to stay on as chief executive, the Sunday Times reported.In the past, the issue of price and premium and the difficult valuation of Glencore's marketing business has separated the two companies, but the two are this time discussing a percentage premium to Xstrata's share price in the "low single digits" -- effectively a ratio to balance out the value of both companies, according to several of the sources.But Xstrata shareholders, who helped block a deal before Glencore's record listing last May on the grounds that they needed a clearer valuation of the trader, could push for more."John Bond is the chairman, so we will be making very sure that he maximizes value for Xstrata shareholders, which means a nil premium merger is not a runner=(Metallurgy. A channel along which molten metal is poured into a mold; a gate.)," one top-five shareholder said last week.One source familiar with the negotiations, however, pointed to the increase in the companies' valuations -- an almost 11 percent uplift for Xstrata shareholders alone since the close on Wednesday, the day before merger talks were announced: "That is real money, real share value," the source said.The merger is expected to take the form of a scheme of arrangement, which would leave Glencore out of any vote.==================Xstrata confident on shareholder support for Glencore deal-CEOTue, Feb 07 03:29 AM ESTLONDON, Feb 7 (Reuters) - Mining group Xstrata is confident shareholders will support a $90 billion all-share agreed takeover by commodities trader Glencore, announced by the two parties on Tuesday."I have absolutely no doubt that this is something that is going to gain support (from shareholders)," Chief Executive Mick Davis said in an interview with Reuters."I'd be surprised if our shareholders don't find this as compelling as we the management have found in recommending the deal," he added.He said that the combined group would likely be involved in acquisition activity in future and that it would look at the "optimisation" of its assets but that nothing was currently up for sale.===============Fidelity backs Glencore Xstrata deal, wants better termsFri, Feb 10 13:09 PM ESTBy Chris VellacottLONDON, Feb 10 (Reuters) - Fidelity Worldwide Investment, a leading shareholder in both mining company Xstrata and Glencore has said it supports the proposed merger between the two "in principle" but wants improved terms."We are supporters of the deal in principle but we think the terms need to be revisited," said a source at the investment manager who said it holds a 2.3 percent stake in Glencore and 1.5 percent in Xstrata.Glencore's proposed $41 billion takover bid for the mining group has met stiff opposition from some Xstrata investors seeking a better premium from Glencore.
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UPDATE 2-Regulatory clock starts as Glencore and Xstrata notify EU
Fri, Feb 24 04:17 AM EST
* Glencore, Xstrata say EU will be notified of merger
* EU has in past considered Glencore, Xstrata as one company
* Glencore, Xstrata do not expect deal to affect competition
* EU competition authority declines to comment
LONDON, Feb 24 (Reuters) - The regulatory clock started ticking on commodities trader Glencore's takeover of mining group Xstrata after the pair said they will notify the European Commission of the proposed $90 billion deal.
Once the notification is acknowledged, the commission will have 25 days to decide whether to approve, reject or begin an in-depth probe into the plan to create the world's fourth-largest natural resource company by market capitalisation in just one of a series of antitrust hurdles the two companies will have to clear.
EU competition authorities have in the past considered the two sides as a single entity as Glencore already owns over 34 percent of Xstrata - enough to exercise control from a competition perspective, and therefore enough to avoid a merger filing and possible probe.
But lawyers and industry sources have said it was unlikely the commission would wave through the largest mining takeover deal to date. Indeed, the Commission notified the parties on Thursday that it required official notification of the merger, implying it will consider the two as separate companies and will examine the deal, instead of leaving it to individual member states.
Glencore and Xstrata said in a statement they would notify the Commission under EU merger regulations.
"The parties expect the merger between Glencore and Xstrata not to result in any negative impact on competition in the commodity markets in which the two companies operate," the two sides said in a statement.
"In fact, the merged firm is expected to be able to offer customers a wider range of products and services and provide improved security of supply to satisfy customer demand."
The office of Competition Commissioner Joaquin Almunia declined to comment.
"We yet have to be notified officially of this operation. Until this is the case, we won't make any comment".
The deal is not expected to face major antitrust issues, but the sheer number of authorities it needs to negotiate with is likely to add to an already lengthy merger timetable.
Glencore and Xstrata combined become the world's largest thermal coal exporter, and the largest producer of both zinc and ferrochrome. But the picture is complex -- in thermal coal, Glencore and Xstrata's export capacity is around 72 million tonnes, but that is less than 10 percent of the global total -- well below the threshold deemed significant by most antitrust authorities.
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Talking Gaga
Glencore shouldn't overplay its hand with Xstrata
05 March 2012 | By Christopher Hughes
Ivan Glasenberg’s poker face isn’t convincing. Glencore’s chief executive is under pressure to raise the commodity trader’s all-share offer for mining group Xstrata. His words at the firm’s annual results on March 5 were robust: the existing terms of the proposed $90 billion tie-up are “fair to all shareholders”. That might seem to imply that any rejig would create an unfair, and unrecommendable, deal. More comments like that and the UK Takeover Panel could force him to clarify whether he is willing to increase the offer or not.
To rejigger: "a series of measures to . . . rejig the monetary system" (Christian Science Monitor).
It’s easy to see why Glasenberg is acting like he holds all the cards. He is Glencore’s lead shareholder. His register is dominated by his fellow partners, who face dilution under the present transaction. He is hardly going to be dethroned if the deal falls apart because he wouldn’t improve the financial terms.
Failure for Xstrata would be more ugly - at least in the short run. The shares would drop as it would no longer receive the premium, albeit a small one, on offer. There would probably also be an investor backlash against CEO Mick Davis and Chairman John Bond. Davis should survive as he has been the driving force in Xstrata’s growth. But Bond would be under pressure to go. His job is to look out for minority shareholders, after all.
Now fast forward six months. Glencore would still be sitting on a 34 percent stake in Xstrata. It would struggle to sell that, even if it wanted to. Having publicly set out the reasons for taking full control, Glencore couldn’t credibly claim the status quo was sustainable. But, by then, Xstrata would have refreshed its board and would be on notice from shareholders that it had to act independently. As a result, any renewed offer from Glencore, whether friendly or hostile, would probably have to be pitched higher.
No one would expect Glasenberg to start budging just yet given that the process could last for months. But if Xstrata’s shareholders are still reluctant to accept the offer at the crunch time, it would be more rational for Glencore to pay up a bit more for this bid than be sent back to square one.
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UPDATE 1-Qatar builds up Xstrata stake ahead of Glencore deal
Mon, Apr 09 06:26 AM EDT
* Fund QIA now holds 5 pct in Xstrata, data shows
* QIA has been raising stake since Glencore merger announcement
* QIA stake valued at around $2.65 bln
By Dinesh Nair
DUBAI, April 9 (Reuters) - Qatar's sovereign wealth fund has increased its stake in Xstrata to just over 5 percent, potentially making it easier for commodities trader Glencore to buy the Anglo-Swiss miner.
The tiny Gulf Arab state, a keen commodities investor, is now Xstrata's third-largest shareholder behind Glencore and asset manager BlackRock Inc N, giving it exposure to a metals powerhouse after missing out on other recent deals.
Glencore is the top Xstrata shareholder with a 33.65-percent stake, followed by BlackRock which has a 5.43 percent ownership in the miner.
Key Xstrata shareholders including Standard Life Investments and Schroders are seeking better terms from Glencore.
Qatar has also bought stakes in luxury goods house LVMH and oil company Total, in a recent spending spree using its natural gas riches to diversify economic risk. It also owns shares in Credit Suisse and the upmarket Harrods department store.
Several major shareholders have opposed Glencore's $41 billion bid for Xstrata but bankers said Qatar would be a passive investor, unlikely to stand in the way. The deal must be backed by 75 percent of shareholders excluding Glencore.
"Getting the Qataris on board will be good for Glencore. They are not activist investors and won't be looking at gaining management influence. But they are opportunistic and won't commit a pound unless they are seeing clear benefits," said a Dubai-based banker.
"This is typical Qatar. They prefer to be the largest minority investors and are not keen on management control. Obviously, they are seeing value in this. Qataris like commodities generally and Glencore shares have fallen off the cliff post its IPO," said the first banker.
Regulatory filings showed that the Qatar Investment Authority (QIA) built up its Xstrata holding, worth $2.65 billion at current prices, through stock market transactions from around 3 percent when Glencore announced its bid.
Bankers said Qatar is likely to keep building its stake.
"The cash stake is about 4.75 percent and it is the derivatives position which has seen the stake go up by 5 percent. It's not normal of Qatar to go above the 5-percent threshold...they could end up owning more," said the banker.
Another banker said that Qatar, among the richest countries in the world per capita, would likely buy more.
"These companies are on top of QIA's shopping list and the sector is very strategic...we wouldn't be surprised if this happens gradually in the coming few months," he said.
TOP OF THE SHOPPING LIST
Qatar's sovereign wealth fund, estimated to have assets of around $100 billion, is widely seen as the most aggressive in the world, ploughing gas dollars into a range of Western assets including automakers, prime real estate and global banks.
It is known to be an enthusiastic investor in commodities. Qatar Holding, the sovereign wealth fund's investment arm, missed out on a $1 billion investment in European Goldfields last year after the company instead agreed on a $2.4 billion takeover by Canadian group Eldorado Gold ELD. TO
Qatar surprised many observers by passing on the Glencore initial public offering last year as rival Abu Dhabi fund Aabar bought into the flotation.
Glencore shares have fallen 22 percent since their listing in May last year, and Xstrata shares have lost 20 percent over the same period, so Qatar's current purchase will give it a sizeable stake in the merged entity at a significant discount.
In recent weeks, the fund has also picked up minority stakes in conglomerate Lagardere as well as LVMH and Total.
Bankers and sovereign wealth fund experts describe the sovereign fund as an opportunistic investor, seeking favorable terms with downside protection for the cash it deploys.
No immediate comment was available from the Qatar fund.
Glencore plans to buy Xstrata in an all-share transaction that could create a combined group worth more than 50 billion pounds ($79 billion), shaking up the industry with its biggest deal to date.
Glencore, the world's largest diversified commodities trader, already owns 34 percent of Xstrata. A tie-up between the two has long been expected as Glencore wants to add more mines to its trading clout.
Under the terms of the transaction, Xstrata shareholders other than Glencore would hold 45 percent of the new company, to be named Glencore Xstrata International, even though Xstrata assets would comprise about 65 percent of the combined group's asset value.
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UPDATE 1-Paperwork relating to Glencore/Xstrata deal delayed
Fri, Apr 13 03:39 AM EDT
* Delay allows further pre-notification talks with EC
* Shareholder meetings to approve deal now due early July
LONDON, April 13 - Documentation relating to commodities trader Glencore's $37 billion takeover of miner Xstrata will be sent to shareholders a month later than previously anticipated, the companies said on Friday.
Glencore and Xstrata said they still expected to receive all relevant approvals to enable completion of the merger in the third quarter of 2012 and described discussions with regulatory authorities as constructive.
The delay to the paperwork will give the companies time to hold more extensive talks with European Commission competition regulators prior to an official notification about the proposed $90 billion combination.
That notification, once acknowledged by the Commission, will kick off a 25-day period in which the regulator will decide whether to approve the deal or begin an in-depth probe into the plan to create the world's fourth-largest miner.
The companies said in February that the deal would face European Commission antitrust scrutiny, kicking off a global regulatory process that could take months.
The two firms said then that they had agreed to officially notify the commission about the deal.
Glencore and Xstrata said on Friday that documentation relating to the merger is now anticipated to be distributed to each company's shareholders by the end of May 2012 instead of in April as originally announced in February.
The delay will also allow the companies to put out first quarter updates in May. Xstrata is due to give a first quarter update on May 1 with Glencore due to update on May 9.
The companies said shareholder meetings to approve the merger are now expected to take place in early July 2012.
Shares in Glencore were up 0.9 percent to 408.4 pence at 0820 GMT. Xstrata shares were up 1.3 percent to 1,120 pence.
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Xstrata plans big bonus to retain CEO ahead of Glencore merger: FT
LONDON (Reuters) - Xstrata is this week set to reveal a bonus package worth tens of millions of pounds in an effort to retain its chief executive ahead of its merger with Glencore , the Financial Times reported on Monday.
The terms must be backed by Xstrata shareholders as part of the proposed merger, the FT said, adding that the deal would be derailed if shareholders fail to back the pay package.
Mick Davis is expected to receive is up to 50 million pounds ($78.2 million), which will keep him at the mining company for the next three years, rather than a performance linked package, people familiar with the terms are cited as saying by the newspaper.
Glencore will this week move into the final stage of its $30 billion takeover of miner Xstrata as shareholders are sent detailed documents on the long-awaited deal.
The terms of the pay package are set to be revealed in those documents, the FT said.
($1 = 0.6396 British pounds)
(Reporting by Stephen Mangan; Editing by Edwina Gibbs)
========= Just say no Xstrata shareholders should say no 18 June 2012 | By Christopher Hughes Xstrata shareholders should vote down the $45 million three-year retention package awarded to Chief Executive Mick Davis to seal the miner’s tie-up with commodity trader Glencore. Sure, the merger would collapse, but that’s a price worth paying. In 2011, Xstrata paid Davis $14.3 million in salary and bonuses plus a long-term incentive plan (LTIP) that delivers an estimated $9.8 million if the miner meets performance targets. If Xstrata merges with Glencore, the Xstrata board thinks an extra $15 million a year is required to keep Davis loyal, taking his total annual package to around $40 million during the integration phase. This would put Davis’s pay well above his peers. Marius Kloppers at BHP Billiton was paid $7.7 million in 2011, plus a $3.3 million LTIP. Cynthia Carroll at Anglo American got about the same, although more tilted to the LTIP. Rio Tinto’s Tom Albanese got $3.9 million plus a $3 million LTIP. Sure, these figures reflect individual performance, and Albanese waived his annual bonus. But their maximum potential pay was still well below that of their Xstrata counterpart. Davis’s retention is effectively insurance against the damage the merged “Glenstrata” would suffer if he quit. He might well leave. M&A often gives executives itchy feet. And Davis’s job will have some big challenges, like managing Glencore’s powerful CEO, Ivan Glasenberg. Davis has form too - he quit BHP Billiton shortly after its founding merger. And he’ll have made millions on vesting options. It’s also true that the company could suffer without Davis at the top. Squabbles between Glencore and Xstrata staff about the allocation of capital to “their” sides of the business could become toxic, other Xstrata people may leave, and the potential synergy of melding Glencore’s trading nous with Xstrata’s mining assets may be lost. Take the probability-weighted hit to the group’s $78 billion market capitalisation if Davis left and the highest bid in the market for his talents (say, from a Central Asian miner) and somewhere in the middle is where to price this retention “insurance”. But if the claims for the combination are true, the job of running Glenstrata should be at least as attractive as running Xstrata, which was itself clearly more attractive than emerging market miners. Davis has celebrated the “unique opportunity” of the deal. There won’t be many jobs that offer the combination of interest, prestige and Davis’s current pay. What’s more, the company’s loss might not actually be so bad if Davis departed. His talents as an operator are less lauded than his ability to negotiate and execute deals. Those skills are becoming less relevant at Xstrata, which is now quite large, and would be in even less prized if Glencore’s assets were added in. The merger stands or falls with Davis’s package. Losing the deal itself would certainly be a shock. Xstrata shares outperformed the sector after the deal leaked; the gains are now unwinding amid doubts about completion. But with Glencore holding a 34 percent blocking stake in Xstrata, their union would probably only be delayed, not scuppered permanently. And Glencore could still offer good enough terms to satisfy Xstrata’s investors and independent directors. There is also an important gain to consider. Investors would have added to the value of all their holdings by showing they won’t let bosses hold them to ransom. == Take the hindmost Xstrata price fears no reason to vote for "Glenstrata" 21 June 2012 | By Kevin Allison Xstrata’s share price could fall sharply if its $90 billion mega-merger with commodity trader Glencore falls apart. But that would have more to do with short-term market dynamics than permanent damage to Xstrata’s underlying business. What’s more, even if the merger completes, shares in the combined group could be vulnerable for different reasons. Some risk of deal failure already looks priced in. On June 21, a single Xstrata share was worth just over 2.6 times one Glencore share - a 7 percent discount to the exchange ratio of 2.8 set when the deal was unveiled in February. In January, an Xstrata share was worth about 2.5 Glencore shares. The possibility of a transaction is still supporting the shares. After the recent commodity rout, the miner still trades on 8.1 times consensus 2012 earnings, according to Reuters data - a 10 percent premium to the average for London-listed peers BHP Billiton and Rio Tinto. During last year’s euro zone flare-up, Xstrata traded at a 10 percent discount to the sector. A vote against the merger or the retention bonuses on which it depends would cause some short-term disruption, not least because it would probably entail a boardroom shakeup. But the main effects would be technical: the 10 percent stake built up by Qatar’s sovereign wealth fund since the merger announcement would become a stock overhang - even though it’s unlikely Qatar would suddenly exit. But if the peg to Glencore shares is inflating Xstrata’s valuation right now, that may also be for technical factors. Glencore’s forward multiple of 7.7 times consensus 2012 earnings is perhaps flattered by a lack of analyst attention, as much of the sell-side is restricted because so many firms are working on the deal. Glencore’s earnings estimates have barely budged since early spring. Perhaps that explains why the combined company trades at 15 percent premium to diversified mining peers on 2013 earnings multiples, according to Macquarie research. Long-term Xstrata shareholders shouldn’t mind sitting out short-term volatility. They should prepare for it. ============== Xstrata board expected to back Glencore bid next week Thu, Sep 13 11:08 AM EDT 1 of 2 By Clara Ferreira-Marques and Sophie Sassard LONDON (Reuters) - Xstrata's board is expected to recommend Glencore's revised $34 billion bid as early as next week, sources close to the deal say, although it may come with some qualification surrounding such issues as staff retention. Glencore, already Xstrata's biggest shareholder with a 34 percent stake, made its original recommended all-share offer in February but hit trouble in June when the company's second-biggest investor Qatar Holding demanded an improved deal. Detailing the new offer on Monday, Glencore said Xstrata shareholders would now get 3.05 shares for every Xstrata share held, instead of the previous offer of 2.8 shares. However, under the new proposal its own chief executive, Ivan Glasenberg, is to take over the helm of the combined business from Xstrata's chief executive Mick Davis, who would have stayed for at least three years under the original deal. Instead, Davis, who has led Xstrata for over a decade, will leave within six months. "We all agree that 3.05 is better, and that if you were happy with 2.8, you should be happy with 3.05," one source involved in the deal said. "But it is all work in progress. There are a lot of people saying this is a slam dunk, but the board has a duty ... to ensure they are comfortable they have the right construct (and can) retain key operational personnel." It was not clear what changes the Xstrata board could request or demand, but one of the sources said the board could seek guarantees from Glencore for managers it sees as key: "It will take more than just reassurance." A separate source said any changes were likely to come in Xstrata's controversial retention package for more than 70 key executives, though others said that was not likely to change. Operational and management issues are key for Xstrata and at the forefront of concerns for the board, several of the sources said, as the miner shifts from an acquisition-fuelled first decade into a phase of organic growth which the miner hopes will boost volumes by 50 percent by the end of 2014 and cut costs. Xstrata's board has until September 24 to decide whether or not to recommend the revised offer. Hostile bids are unusual in mining, a sector in which many large deals and mega-mergers have failed to materialize for a variety of reasons including political and regulatory issues and a tie-up between Xstrata and Glencore would be the second-biggest deal in the sector to date. MEETINGS CONTINUE Several sources said the board - set to meet this week and next as talks continue between independent directors and shareholders - had not yet taken a final decision on details including changes to the staff retention package, for example, but could reach an agreement before the deadline of September 24. "Meetings are still going on. The board will have a range of views to consider," another source familiar with the deal said. Shareholders have been broadly supportive of the revised offer, though Qatar, which has backed Xstrata's management, has yet to make its decision public. It said earlier this week it was considering its position. Most of the sources said they now expected a deal could be done, however. "We are now far more optimistic than last week. It looks like if there is no deal agreed on Monday, then it will be (a few days later)," one of them said. Xstrata's independent directors are unlikely to rush their approval, having come under fire after recommending the original Glencore deal and the more than 170 million-pound ($274 million) retention package for 73 of the miner's top managers which many shareholders felt was excessive. After Glencore's last-minute revision of its offer last week the directors said in a curt statement that the exchange ratio was "significantly lower than would be expected in a takeover" and warned of "significant risk" if Davis were to be replaced as chief executive and management incentive arrangements altered. In detailing its revised offer on Monday Glencore took a more conciliatory tone than when it first made the proposal on Friday, saying the retention and incentive arrangements would have to be acceptable to shareholders. (Editing by Greg Mahlich) ================= BRIEF-Xstrata announces $4.5bln bond issue Fri, Oct 19 02:08 AM EDT LONDON, Oct 19 (Reuters) - Xstrata PLC : * A US $4.5 bln four-tranche transaction comprising 3 year, 5 year, 10 year and 30 year notes * The transaction covers $1.25 billion 1.8% guaranteed notes due October 2015 * $1.75 billion 2.45% guaranteed notes due October 2017 * $1 billion 4.0% guaranteed notes due October 2022 and $0.5 billion 5.3% guaranteed notes due October 2042. * The net proceeds raised will be used to repay existing debt and for general corporate purposes ============
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