Glencore confident its £34bn bid can win over Xstrata shareholders

 
Michael Bow
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SENIOR figures at Glencore, the international trading house, were growing increasingly confident last night they could win the backing of a majority of Xstrata shareholders for their new £34bn takeover plans despite the opposition of a couple of vocal institutional holders.

Detailed proposals for the takeover are expected to be revealed to the market as early as today as Glencore gets set to pay shareholders an improved premium and keep some of Xstrata’s key lieutenants on the board.

Xstrata’s second-biggest shareholder Qatar Holding met with Glencore late on Thursday evening, in a meeting partly brokered by former PM Tony Blair, to agree to increased terms for a deal, with Glencore offering 3.05 shares rather than 2.8 for every Xstrata share. Standard Life Investments, with 1.4 per cent, has also backed the deal.

But Knight Vinke and Schroders, who both own 0.5 per cent, voiced concerns over the deal after it was unveiled and said a higher premium should be paid for giving Glencore overall control of the firm.

“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,” Knight Vinke said yesterday.

The mega-merger, which had looked destined for failure as shareholders convened to vote it down on Friday, was thrown into chaos after Glencore changed the terms.

Sources close to Xstrata last night suggested Qatar is content with the new premium on the deal but had reservations about jettisoning Xstrata’s board

In response, it is understood Glencore softened the terms of the deal over the weekend in a bid to win shareholder backing, with a proposal to keep Xstrata chairman Sir John Bond.

Xstrata chief executive Mick Davis is thought to be staying for six months before leaving the combined firm.

In a sign of Glencore’s growing confidence, it is also understood to have agreed to structure the transaction as a scheme of arrangement rather than a takeover offer.

The scheme of arrangement means Glencore has to secure around 75 per cent approval from shareholders and cannot use its own 34 per cent stake in the firm to vote.

Shareholders may warm to the improved premium but many leading shareholders have previously attacked the Xstrata board for its generous pay handouts. Glencore and Xstrata did not comment

TIMELINE: GLENCORE AND XSTRATA
1990
Swiss commodity trader Glencore becomes a substantial shareholder in its older Swiss stablemate and rival Xstrata.

2002
Xstrata floats in London after merging with Glencore’s Australian and South African coal mining business. Mick Davis is appointed as chief executive.

2011
Glencore, which by now has boosted its holding in Xstrata to 35 per cent, floats in London. Ivan Glasenberg, an old school friend of Davis, is chief executive.

FEB 2012
Glencore puts forward its “merger of equals” proposal with Xstrata, with a merger ratio of 2.8 new Glencore shares for every Xstrata share held.

MARCH
Major shareholders respond to the proposal. BlackRock backs the merger, but Schroders demand a higher ratio of 3.5. Standard Life Investments also opposes the deal initially. Qatar Holding starts raising its stake in Xstrata.

JUNE
The Association of British Insurers issues a warning that the pay for Xstrata bosses after the deal is unacceptable.
Qatar Holding breaks ranks and demands a ratio of 3.25 per share as a condition of its approval.

JULY
Qatar starts to buy Xstrata more aggressively to become the second biggest shareholder behind Glencore.

AUGUST
Qatar ends the month adamant it will vote down the proposed 2.8 ratio.

SEPTEMBER
Minutes before the vote, Glencore comes in with an improved offer of 3.05. The deal is now a full takeover.

ADVISERS M KLEIN & COMPANY

MICHAEL KLEIN
M KLEIN & COMPANY
Former Citigroup executive Michael Klein has been acting as strategic consultant for both Glencore and Xstrata on the deal, putting him at the centre of the action. But on Thursday he was joined by another high profile rainmaker, former Prime Minister Tony Blair, who was appointed to act in a similar role to Klein. Blair was given the role as a transaction mediator, officially acting as an adviser for both Glencore and Xstrata. Late on Thursday night he helped convene an 11th hour late night summit in Claridge’s Hotel, Mayfair between the Qataris and Glencore to thrash out a deal. Like Klein, Blair was acting on behalf of his own company, Blair Associates. Blair has advised Qatar’s ruling family on previous deals. Reports suggest he is set to make $1m (£624,000) from the evening.