Glencore International Plc (LON:GLEN) (HKG:0805) has finally upped its bid for the proposed Merger with Xstrata PLC (LON:XTA) by increasing its initilal stubbornly rigid offer of 2.8 shares for every Xstrata share to 3.05 shares. This marks a turning point or perhaps some signs of well negotiated deal to what was quickly beginning to show some signs of collapsing, or resulting into a hostile takeover.
Glencore International Plc (LON:GLEN) (HKG:0805) which had vowed not to pay more than what it feels is the right value for investment had held its stance for a lengthy period, as the Qatar based Sovereign fund (Qatar Holdings), a major shareholder at Xstrata proved to be a major predicament, by slapping a rate of 3.25 Glencore shares for every Xstrata share.
Nonetheless, as featured one one of our recent articles, the Qatari Sovereign fund did leave a window for negotiation after it failed to mention the 3.25 rate per share in its most recent retaliation against Glencore’s 2.8 per share proposition. This appears to be what Glencore has seized to capitalize on in a bid to save the deal.
However, according to Market Watch, Xstrata PLC (LON:XTA) will have to bide by some more structural changes, as proposed by Glencore, which expressed that, Xstrata CEO, Mick Davis, would lead the combined company for six months only, after which, Glencore CEO,Ivan Glasenberg, will take over. Additionally, Xstrata Chairman John Bond will become permanent chairman of the merged company.
Glencore International Plc (LON:GLEN) (HKG:0805) has therefore, relaxed its stance on the its initial propositions of 2.8, and also allowed Mick Davis to serve as immediate CEO upon the merger, contrary to the initial structure, which indicated that Ivan Glasenberg was to become CEO outright after the merger. Glencore already holds 34% in Xstrata, which means that it still needs substantial support from other shareholders, including Qatar Holdings, in order to complete the merger.
However, Xstrata PLC (LON:XTA) board was not as pleased as expected following Friday’s discussions, questioning Glencore’s offer price together with the accompanying structural adjustments on governance. It is also noted that Mick Davis had rejected Ivan Glasenberg’s offer of an interim CEO, a matter which reliable sources doubt whether the new offer had any positive impact on.
Nonetheless, investors seem to be very positive about the merger. According to market reaction to the recent developments, Xstrata PLC (LON:XTA) shares were up by more than 2%, as compared to, just over 1% decline on Glencore International Plc (LON:GLEN) (HKG:0805) shares.
Glencore International Plc (LON:GLEN) (HKG:0805)o has since expressed that the current deal of 3.05 per share is the best it can offer, and would not increase, but rather opt for other channels such as a takeover, subject to a consent from the U.K takeover panel and Xstrata, should the proposed bid prove insufficient. Under the merger proposition, Glencore has to gather at least 75% vote from the other shareholders, including Qatar Holdings, which would be a difficult task if the rate is not agreed upon in advance.
Glencore International Plc (LON:GLEN) (HKG:0805) has experienced boom i its mining business, especially its activities in Australia, part of which has been the driving force behind the country’s robust economic growth realized over the last two decades. Nonetheless, the world’s largest commodities trader posted decline in profits, as depicted by the recent slowdown in its business in the Australasian country, due to the increasing costs in mining and decline in demand from China.