Glencore’s Glasenberg has been desperate to buy Xstrata for years and is not about to bow out just because a sovereign wealth fund is fighting for fair terms
Ivan Glasenberg, Glencore chief executive, rarely encounters people with deeper pockets than himself. He has now. Qatar Holdings, by buying 11% of Xstrata and declaring that the terms of Glencore’s merger proposal are too mean, has pinned him against a wall. Pay more or the deal is dead, is its blunt message to the multi-billionaire.
But pay how much more? The Qataris say a ratio of 3.25 Glencore shares for every Xstrata share would be a “more appropriate distribution of the benefits of the merger” than Glencore’s intended ratio of 2.8. OK, but is 3.25 a line in the sand or an opening pitch?
It’s impossible to know from the outside. The Qataris’ chief advantage has been surprise, and their best tactic now would be to keep Glasenberg guessing. In other words: tell him that support is guaranteed at 3.25; anything less and he’s taking a risk.
Qatar can be confident that the Glencore boss will go higher (and perhaps even to 3.25), whatever he said on day one about mergers of equals not requiring takeover premiums. The truth is that Glasenberg has been desperate to buy Xstrata for years and is not about to bow out just because a sovereign wealth fund, against form, has had the gumption to fight for fair terms.
That’s doubly true if Sir John Bond, Xstrata’s chairman, has eaten enough humble pie on the retention awards to persuade UK pension funds to back down. Bond’s latest version is a mess, it should be said. The awards for Xstrata’s top nine executives, including big boss Mick Davis, will be tied to performance but the payments to the other 64 managers won’t be. The nine will be asked to find cost savings of $350m (£225m) – but that’s a meaningless figure without knowing the intended level of the combined group’s capital expenditure.
Still, Bond has conceded that the retention payments should be made in shares, and not cash. That’s a big U-turn and may persuade some funds to hold their noses, even if the windfall for the executives, now it is denominated in stock, could soar beyond £173m.
For his next trick, Bond will have to explain why, having botched the retention issue and rolled over meekly on the original merger terms, he still deserves to chair Glenstrata, or even an still-independent Xstrata if that’s how the dust settles. Maybe Qatar also has an opinion on Bond.
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