Glencore raises offer for Xstrata to salvage deal

The merger appeared to be heading for the rocks after Xstrata shareholder Qatar held out for more.

Xstrata said Glencore was now proposing to offer 3.05 new shares for every Xstrata share, up from 2.8, with Glencore Chief Executive Ivan Glasenberg to become CEO of the combined group, instead of Xstrata boss Mick Davis as originally envisaged.

Xstrata said Glencore was also suggesting a possible change to the structure of the deal that could allow it to pass more easily with a simple majority of shareholders.

Glencore's bid had been teetering on the brink of collapse after Xstrata's second-largest shareholder, Qatar, with 12%, said it would vote against the deal unless it was improved.

Glencore Chairman Simon Murray earlier cancelled a meeting with shareholders in Zug, Switzerland, that had been called to vote on the merger, saying there had been "overnight developments".

Xstrata shares were up 6.4% at 1,041.5 pence at 10am GMT. Glencore's shares were down 5.2% at 371.95p, which would value each Xstrata share at 1 134.45p under the new ratio.

Possible to change structure
Under the deal's original structure, holders of just 16.5% of Xstrata shares would have needed to vote against the tie-up for the deal to collapse, and Qatar said last week it would vote against, making it very unlikely the bid could have gone through without an improvement.

Glencore left the door open for a change to that structure, as the new bid will consider a scheme of arrangement, the current structure, and a straightforward takeover. Xstrata's board and shareholders are expected to resist this change, which would allow Glencore to buy shares offered in to a tender, as non-executives had sought to ensure Glencore would either get full control of the miner or remain at its current shareholding.

"The potential change of structure from scheme of arrangement to a takeover is significant. It makes forcing the deal through more likely," said one of Xstrata's largest 40 investors.

"I've no idea if the Qataris will go for the revised ratio. Clearly they are still important, but if the deal becomes a takeover, then the Qataris are less crucial."

Qatar and Glencore had not met since the Gulf state's sovereign wealth fund demanded an improvement in June to the trader's offer, and both sides had said they would stick to their positions.

"We believe that Qatar will probably accept this 3.05. It's a little bit higher than we thought. We thought it would be about 3.0. But obviously that's great for Xstrata shareholders," said Brewin Dolphin analyst Nik Stanojevic.

"I'm very satisfied with the new terms. I think we would be disappointed if we were Glencore shareholders, but we are happy because we are Xstrata," said Thomas Mitsoulis, asset manager for an Xstrata shareholder.

One mid-sized investor said he believed shareholders would accept Glasenberg as CEO, but "they'd still want Mick to stay within the group", perhaps as chief operating officer.

Glencore, with a 34% stake, has long coveted a full tie-up with Xstrata to create a mining and trading powerhouse. It made its move in February, less than a year after listing its own shares, which in turn had been largely motivated by the desire to do more ambitious deals.

Glencore is being advised by Citigroup, Morgan Stanley, Credit Suisse and BNP Paribas. Xstrata is being advised by Deutsche Bank, JP Morgan, Goldman Sachs and Nomura, with a role also for Barclays Capital.

Both sides were advised by an independent consultant, former Citi banker Michael Klein, who shuttled between executives to broker the deal. Qatar Holding is being advised by Lazard. – Reuters

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Clara ferreira marques
Clara ferreira marques works from Singapore. Columnist for Reuters Breakingviews in Singapore. All things commodities, SE Asia and more. Previously London, Milan, Moscow, Mumbai. Comments are my own. Clara ferreira marques has over 855 followers on Twitter.

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