Glencore faces sweetener call
Glencore could be forced to boost its offer for Xstrata after two of the miner’s top shareholders said they would refuse to vote in favour of the £56bn merger.
The two commodities giants unveiled a deal yesterday that would see Glencore shareholders pay an effective premium of 15.2 per cent on Xstrata’s pre-deal share price to bring off the merger, with the resulting entity renamed Glencore Xstrata International.
The deal values Xstrata at £39bn, significantly below the £45bn bid from Vale that it rejected in 2008.
Xstrata investors say Glencore’s offer is not nearly enough. Schroders’ Richard Buxton and Standard Life’s Peter Cummings, whose funds together control 3.6 per cent of the stock, both said yesterday that they would vote against the deal, which requires 75 per cent support to get through.
Because Glencore owns 34 per cent of Xstrata and is excluded from voting, just 16.5 per cent of shareholder votes could block the merger.
The threat could prompt Glencore to revise its bid upwards slightly. One source close to the deal said that it is essentially being negotiated between the two companies’ chief executives.
The source said: “If these guys think they need to tweak the deal to get it over the line, they’ll tweak it – but there is a line.”
But one adviser on the deal said: “Maybe Xstrata should be paying a premium for Glencore. There’s no guarantee the deal will go through.”
In addition to arguing over price, investors are also sceptical that the firms’ boards have their interests in mind.
Buxton said yesterday: “This is a fabulous deal for Glencore, it’s probably a great deal for the Xstrata management, but it’s a poor deal for Xstrata’s majority shareholders.”
He added that he would need to see the premium increased “materially” to change his mind.
Xstrata’s chief executive Mick Davis and chief financial officer Trevor Reid have bagged both of the top management jobs in the merged entity while their chairman Sir John Bond will lead the board.
Their counterparts at Glencore are to take deputy roles, but two sources close to the company told City A.M. this week that Davis will be allowed to reign over the merged company only temporarily until his deputy Ivan Glasenberg takes over.
If the deal does go ahead, it will be the largest M&A transaction since the US government nationalised AIG for $59bn in 2010 and will be the largest mining merger ever, according to Dealogic. But aside from the price and management issues, the deal is also likely to face a challenge from EU competition regulators.