COMMODITIES trader Glencore laid out its raised $36bn all-share bid for Xstrata on Monday, warning it would not improve the terms again after making concessions to recalcitrant shareholders.
Glencore, the miner’s largest shareholder with a 34% stake, confirmed its bid was now 3.05 new shares for every Xstrata share held, up from 2.8. That represents a 27% premium to the ratio at which the two were trading last week, when the market believed the deal would collapse.
Monday’s offer — expected after Glencore and rival Xstrata shareholder Qatar ended a months-long stalemate on Friday — softens points that were included in proposals initially released last week, explicitly retaining a merger structure, board balance and a retention scheme for the miner’s top managers.
By retaining the original legal structure, 75% of shareholders excluding Glencore have to approve any deal. Glencore had raised the possibility of switching to a straightforward takeover, with a simple majority.
"Glencore confirms that it is an all-share merger, and it will not increase the merger ratio further," the company said.
"The increased merger ratio represents a substantial premium for a company with a 34% shareholder," it said.
Shares in Xstrata were up 3.9% at 1,053p on Monday morning, outperforming a 1.3% rise in the UK mining sector, while Glencore was up 0.5%.
"The interesting dilemma is going to be that the Xstrata board, having supported the offer at 2.8 and now being presented with an offer at 3.05, is going to find it pretty hard to refuse it," said John Robinson, chairman of Global Mining Investments, a fund managed by BlackRock, Glencore’s biggest investment management shareholder. "It now comes down to personalities."
Xstrata said its independent directors were considering the fresh bid and would respond by 6am GMT on September 24 after consulting with major shareholders.
"The new proposal is structured far less aggressively than the straight takeover hinted at on Friday," Liberum analysts said. They now expected the revised structure to get Xstrata’s board’s approval, as it addressed governance and the merger structure, they said.
Glasenberg at the top
In line with proposals outlined on Friday in a u-turn from Glencore that rescued the deal from collapse, Glencore’s own chief executive, Ivan Glasenberg, will become chief executive of the combined group, not Xstrata’s Mick Davis, a mining veteran who would have taken the job under the original offer.
Glasenberg will take over after an interim period of six months under Davis, who has held the top job at Xstrata for a decade, building it up from a $500m collection of zinc and ferrochrome assets into the world’s fourth-largest diversified miner.
"Mick staying on another six months doesn’t make a great deal of difference one way or the other," one of Xstrata’s 40 largest investors said, brushing off the apparent concession.
"Six months is not a very long period of time at all, particularly if you know you are on the way out."
In a gesture to appease both the independent directors and shareholders fretting over management of Xstrata’s operations and the 21 new projects due to come onstream in the next two years, Glencore said on Monday the merger remained conditional on Xstrata’s controversial retention scheme for key managers.
Glencore, however, signaled it could make changes to the details of the scheme, seen by some investors as too generous.
"Glencore has asked the independent Xstrata board to consider what (if any) changes they would propose to the retention and incentive arrangement packages ... to ensure that they are acceptable to independent Xstrata shareholders," it said.
Xstrata chairman John Bond will retain the same job in the combined group, as under the original proposals, and the board will be drawn evenly from the two companies.
A former chairman of Vodafone and HSBC, Bond is considered a steadier hand than Glencore chairman Simon Murray, but has also been criticised by some minority shareholders for recommending the initial Glencore offer.
Glencore, the world’s largest diversified commodities trader, made a long-awaited takeover bid for Xstrata in February. But the offer ran into trouble and was expected to fail as shareholders prepared to vote last Friday, after number two shareholder Qatar and other investors opposed the terms of the deal, while Glencore refused to yield.
Living up to Mr Glasenberg’s reputation as an unpredictable negotiator, however, a higher proposal from Glencore was announced just minutes before the miner’s shareholders met to cast their ballots on the existing offer.