Glencore Unpredictably Increases Xstrata Offer To Rescue The Deal

The trader of copper to cotton commodities, Glencore International Plc (LON:GLEN), made a revised offer of 3.05 new shares for every Xstrata share owned by other stakeholders. Glencore’s previous offer was 2.8 new shares, but it was opposed by Qatar, another big shareholder in Xstrata. Qatar’s sovereign wealth fund, which owns 12 percent in Xstrata, was demanding a ratio of 3.25 in June. Based on the latest offer, Xstrata PLC (LON:XTA) shares not owned by Glencore are valued at $36 billion. Glencore has a 34 percent stake in the mining company.

The deal is now being termed as a takeover, instead of a merger of equals. So, Switzerland-based Xstrata PLC (LON:XTA) is expecting a higher premium. Xstrata said that the current 17.6 percent premium is “significantly lower than would be expected in a takeover”.

According to the new proposal, Glencore’s Chief Executive, Ivan Glasenberg, will be the CEO of the combined group. In the earlier offer, Glencore International Plc (LON:GLEN) had stated that Xstrata boss Mick Davis would be the CEO of the combined group.

“Potentially Mick Davis not having the CEO post may upset Xstrata PLC (LON:XTA) shareholders, but probably Ivan thought if it’s going to cost me so much money, I want control,” Peter Davey of Standard Bank Group said. The role of Davis is still unclear, and there are speculations that the deal may end his career at Xstrata.

Sources familiar with the deal told Reuters that Qatar has been supportive to the new offer and there are constructive talks going on between them. Qatar had earlier threatened to vote down the deal. Back then, opposition from holders of just 16.5 percent of Xstrata shares was needed for the deal to collapse, and Qatar alone had 12 percent shares. Qatar didn’t speak to Glencore International Plc (LON:GLEN) from June until Thursday night, when Glencore and Xstrata both canceled their respective meetings, citing “overnight developments” in the deal.

“We are supportive of the improved terms and the changes to the executive governance arrangements,” said David Cumming, head of equities at Standard Life Investments. “The deal will, we believe, enhance the growth prospects of the combined group, and consequently, as shareholders both of Xstrata and Glencore, we are pleased with the proposed outcome.”

Xstrata PLC (LON:XTA) shares jumped 8 percent after the offer to 1,057.5 pence at 12:15 GMT.

Bank of America/Merrill Lynch Report (8/22/12)

“All eyes on Qatar for the Xstrata deal. While the release contains limited mention of the proposed Xstrata transaction, Ivan Glasenberg, Glencore CEO, has been quoted on Bloomberg as saying, [If the Qataris block the deal] “… so be it. It’s not the end of the world, we will move on”. Some might view this as a negotiating tactic. The “soft” deadline to change the terms of the deal is this Friday (August 24th) i.e. 2 weeks before the vote. The terms could be changed after this but the EGM vote would need to be delayed. Qatar now owns nearly 12% of Xstrata’s shares, which, dependent on voter turnout, should be close to enough to block the deal if Qatar chooses to vote against it.”