Fat Lady Yet To Sing on Glencore-Xstrata Merger Drama

on Sep 13, 2012

Did Glencore’s CEO Ivan Glasenberg blink first or was it always a cunning plan? On Friday, 7 September, with the Glencore-Xstrata mega-merger seemingly about to fall over, with intransigence the order of the day on the share-swap, Glencore announced that it was ready to meet the demand of key Xstrata shareholder, Qatar Holdings, and raise the number of new Glencore shares which Xstrata shareholders would receive. Not to the 3.25:1 sought by Qatar but well on the way – from the original offer of 2.8 to 3.08.

There were some bells and whistles attached to Glencore’s shift from the deal as thrashed out between commodities giant Glencore and Xrata’s independent directors back in February. Notably, whilst Xstrata’s chairman Sir John Bond will still chair the merger entity, the mining co’s CEO Mick Davis moves from a hugely lucrative £27 million three-year retention deal to a golden parachute – the terms of which yet to be announced but unlikely to be anywhere in the same league – at the end of six months. Such are the slings and arrows of top-tier corporate management.

!m[](/uploads/story/349/thumbs/pic1_inline.png)Although it hasn’t yet come out and said as much, Qatar Holdings – the oil state’s sovereign wealth fund – is thought to have given the thumbs up to Glencore’s revised offer in the early hours of last Friday morning. This followed a meeting at the Claridge Hotel in Mayfair between the Sheikh’s people and Glencore’s management, attended – reportedly at the request of both sides – by none other than Tony Blair. The former British prime minister is close to the Qatari royal family though had not hitherto been widely recognised as an M&A specialist. Indeed, according to a report over the weekend on the thisismoney.co.uk website, Blair early on turned to a neighbouring banker and confessed, “I’ve got absolutely no idea why I’m here.”

But this of course is self-deprecation par excellence and Blair undoubtedly knew exactly the hand he was expected to play. No-one close to the action is saying whether his intervention proved to be pivotal. Plainly though, an impasse needed to be broken between parties which had spent many weeks not blinking first and perhaps the ex-PM’s congenial presence gave both Glencore and Qatar somewhere to look without losing face.

So once again an Xstrata EGM on the Glencore tie-up has been postponed, this time to allow the miner’s board to assess and advise shareholders on the revised offer – a deal which is looking less like the much-touted ‘merger of equals’ and more like the takeover which in substance it is. But in a sop to sensitivities amongst Xstrata’s board about being sidelined in the deal-making, the merger mechanism is to remain a statutory scheme of arrangement, requiring 75 percent shareholder approval sans the existing 34 percent Glencore holding in Xstrata, which will remain disqualified from voting.

Since Friday, Glencore’s Lasenberg has been at pains to spell out that this is his outfit’s absolutely best and final offer, failing acceptance of which he and it will take their bat and ball and go home. But seasoned merger-watchers will be thinking, we’ve heard that one before. Qatar may have been bought off but there are perhaps other Xstrata shareholders who reckon 3.08 is still a long way from the magic number. For example, activist investor Knight Vinke who, reacting to Glencore’s shift, professed to being underwhelmed. The show is not necessarily over yet folks.


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