Commodities trader Glencore brushed aside worries over recalcitrant Xstrata investors on Monday, sticking to what it says is a “fair” deal and offering little ground for those hoping it could improve an agreed $37-billion offer.
Glencore’s tie-up with miner Xstrata, in which it already owns a 34% stake, would be the largest since Rio Tinto’s acquisition of Alcan in 2007, but has faced opposition from some key shareholders in the miner, who say the terms do not recognise the company’s growth potential.
“This is a merger of equals. Xstrata have got most of the senior jobs. Most previous mergers of equals were done at a ratio of equals — this deal … has been done at a premium,” Glencore chief executive Ivan Glasenberg told Reuters.
“We believe it is a fair deal, fair to all shareholders.”
Glencore, which will now begin roadshows to promote the deal to its own and to Xstrata investors, is offering 2.8 new shares for every Xstrata share it does not already own.
The offer is worth around 1 167 pence per Xstrata share, compared to an Xstrata share price of around 1 178 pence. Glencore shares were down 0.7% at 417 pence at 8.20am GMT, while Xstrata’s were 1.6% lower.
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Glasenberg said Glencore would focus with investors on its long-life, low cost assets — low-capital intensity is a relative rarity among diversified miners as costs at major projects escalate — and also on its trading machine.
“We don’t build mines for the sake of building mines. In Glencore we own a big portion of this equity — we are more focused on return on equity-type assets,” he said.
“If you look historically at all our assets, we achieve a return on equity, or return on capital spent, better than any of the mining companies today.”
The world’s largest diversified commodities trader, which had released estimated 2011 earnings last month alongside news of the planned tie-up, confirmed those results, with net income up 7% to $4.06-billion, on a 28% rise in revenue.
It will pay a total dividend for the year of $0.15 per share, netting Glasenberg, the company’s largest single shareholder, just under $164-million.
Glasenberg said 2012 had started “very strongly” for Glencore’s trading arm across all divisions, adding its key growth area of iron ore was looking “a lot stronger” in 2012.
Operating profit in the industrial side in 2011, which includes Glencore’s production assets, climbed 18%, but operating profit on the marketing side dropped over 18% — largely due to cotton losses.
Glencore was hit along with the rest of the cotton industry by rollercoaster conditions which saw sky-high prices in the spring followed by consumers pulling back and prices tumbling. — Reuters