Xstrata Shareholders Want More Premium from Glencore on New Takeover Bid
Majority of Xstrata investors would vote against the revised merger term with commodities trader Glencore International, which raised its offer by nine per cent to $36 billion Friday last week.
According to The Daily Telegraph, Xstrata shareholders would likely oppose what was touted earlier in February as the biggest corporate marriage in the commodities market following last-minute adjustments last week that radically altered the substance of the deal.
For Glencore to win more than 50 per cent of shareholders' support for its tender, it needs to equal its takeover initiatives with "an increased premium or cash element," that would justify the sudden change of course, the UK publication reported on Saturday.
From the merger of equals, which was agreed upon by Xstrata chief executive Mick Davis and his Glencore counterpart, Ivan Glasenberg, the offer sheet from the latter was transformed into what appears as an aggressive takeover tack that would seek the ouster of Mr Davis and a host of Xstrata executives once the transaction has been finalised and approved by Xstrata shareholders.
The new deal, reportedly brokered between Glencore and Qatar Holding, which owns 12 per cent stakes at Xstrata, by former British Prime Minister Tony Blair, departed from an earlier management setup that gives the CEO seat to Mr Davis and the number 2 spot to Mr Glasenberg.
The Glencore chief has agreed to dramatically increase his offer provided he'll be the top man of the new company, which The Telegraph said will likely control a big chunk of the global commodities trading.
The change reportedly came as a surprise to Qatar's wealth management fund and prompted a key shareholder to comment that what was being pushed at the moment "made a mockery of the (previous) merger terms."
"We think that Mick (Davis) and his team should be in the driving seat and that hasn't changed," Richard Burton of Schroders, one of Xstrata's major investors, told The Telegraph over the weekend.
Another shareholder, Knight Vinke Asset Management, told The Wall Street Journal on Sunday that it will vote down the new offer because "the value of Xstrata is substantially more than Glencore is proposing today."
"Glencore's latest proposal now makes clear that the transaction represents a change of control, for which, as we have continued to stress, an appropriate premium needs to be paid," the Xstrata investor added.
However, Mr Davis himself appears open to the idea of giving up his post and leaving the merged company that would be established following the Xstrata-Glencore deal provided the suitor would toss higher premiums on its offer, Bloomberg has reported on Monday, citing an unnamed source.
Pointing to an earlier statement by Xstrata, the same Bloomberg source stressed that by its present form, Glencore's offer would hardly gain the support of the Swiss miner's board and investors but any significant bump coming from Mr Glasenberg would likely get a second look from Mr Davis' team.
"The intention to replace Mick Davis as CEO and to amend the management incentive arrangements represents significant risk around the retention of the Xstrata senior and operational management," Bloomberg quoted the Xstrata statement as saying.
The publication also reported that senior Xstrata officials will need first to review the new Glencore proposal, details of which are expected to be forwarded to the miner on Monday, before they can decide if the offer merits the attention of company shareholders.