Glencore ups offer for Xstrata to salvage deal

Trader Glencore has raised its offer for miner Xstrata in a dramatic 11th-hour attempt to rescue one of the sector’s largest ever deals from collapse after months of opposition from rival shareholder Qatar.Glencore chief executive Ivan Glasenberg lived up to his reputation as an unpredictable dealmaker, with overnight talks with Qatar that unlocked an impasse between Xstrata’s top two investors. Dawn telephone calls yesterday put the now $36bn deal back on the table, sources familiar with the deal said.Glencore, which has a 34% stake in Xstrata already, is proposing an offer of 3.05 new shares for every Xstrata share it does not already own, up from 2.8. Qatar, Xstrata’s second largest shareholder, demanded a ratio of 3.25 in June, though in recent days sources involved in the deal had said the Gulf state’s sovereign wealth fund could settle for a compromise.“Ivan showed what everyone suspected — he needs this deal more than anyone else,” said one source familiar with the deal.The new proposal released by Xstrata, however, makes other changes, including placing Glasenberg as chief executive of the new group instead of Xstrata’s Mick Davis, a veteran manager with a strong operating record who would have taken the helm under the original deal.The role for Davis and his team, if any, in the future company is unclear under yesterday’s proposal, and the change could draw an end to the South African manager’s career at Xstrata after a decade at the top. Looking tense and tired at Xstrata’s shareholder meeting, Davis declined to comment on his plans.Glencore also said it might change the offer’s structure, from a complex arrangement that requires 75% approval of non-Glencore shareholders, to a straightforward takeover requiring a simple majority of Xstrata shares.But the proposals, still not a firm offer from Glencore, were far from certain yesterday to pull the deal over the line. Xstrata directors registered their objections and several sources said it was not clear Qatar backed either the management changes or the shift to a simple takeover.Xstrata, in a statement, cited a letter from its independent directors to Glencore which questioned the revised offer’s 22% premium to Thursday’s closing price as “significantly lower than would be expected in a takeover” and criticised the intention to replace Davis and to change incentives for executives to stay with the company as a “significant risk” to its operations.Three sources close to the deal said Qatar supported the new share ratio — the main subject of overnight talks — but not necessarily the move to a takeover structure or Davis’s removal as chief executive officer.Qatar, which had not held talks with Glencore for two months before Thursday night, has not yet commented on the offer.“My gut tells me that Ivan has played this very cleverly ... He’s met them halfway, declared this as a takeover and there’s no clarity on whether Mick or any of his team are going to be involved,” head of UK equities Richard Buxton at Schroders, one of Xstrata’s top 20 shareholders, said.“We would still oppose, but the Qataris are the kingmakers and it partly depends on what they do... But it will clearly affect how long we wish to remain an investor in the combined entity if it occurs on these terms.”Buxton dismissed the revised bid as “still inequitable”.Glencore’s bid had been heading for the rocks after Qatar, with 12% of Xstrata, said it would vote down the deal unless it was improved.Industry sources and those involved in the bid had not ruled out a last-minute handbrake turn from Glencore, but Glencore’s chairman Simon Murray shocked shareholders gathered in Zug, Switzerland expecting to see the deal die, by hurriedly cancelling the general meeting, citing “overnight developments”.Murray, who emerged alone to make his statement, then rushed out of a back door.Less than two hours later, Xstrata postponed its own meeting and announced the revised terms itself. Glencore has not made a statement on the proposed changes to the deal, only an announcement postponing its meeting.Xstrata shares were up 3.4% at 1,048.7 pence at 1600 GMT, off earlier highs after the miner’s directors voiced their opposition. Glencore’s were down 3.6% at 375.7 pence, which would value each Xstrata share at almost 1,145.9 pence under the new ratio, midway between Glencore’s offer and Qatar’s demands.Under the deal’s original structure, holders of just 16.5% of Xstrata shares would have needed to vote against the tie-up for the deal to collapse, and Qatar said last week it would vote against, making it very unlikely the bid could have gone through without an improvement.Glencore yesterday, however, left the door open for a change to that structure to a straightforward takeover.“The potential change of structure from scheme of arrangement to a takeover is significant,” said one of Xstrata’s largest 40 investors. “It makes forcing the deal through more likely.”Some Xstrata investors were content with the new proposal.“I’m very satisfied with the new terms. I think we would be disappointed if we were Glencore shareholders, but we are happy because we are Xstrata,” said Thomas Mitsoulis, asset manager for one shareholder.