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Mining Week 37/’12: Glencore increases bid to take over Xstrata

September 8, 2012 Comments off

Top Story of the Week: Glencore takes Xstrata bid hostile

  • Hours before Xstrata’s shareholders were to vote on the proposed merger of equals, Glencore announced it would make a higher bid on different terms . If the vote would have gone on the Qatari sovereign wealth fund would most likely have blocked a deal.
  • The new bid offers 3.05 shares of Glencore for each share of Xstrata, 9% up from the previous bid at 2.80x. In response to the bid Xstrata’s share price went up 8.6% on Friday, with Glencore’s share price dropping 2.9%.
  • Key changes to the previous bid are:
    1. The ‘merger of equals’ will likely change to a plain takeover. As a Xstrata’s shareholders can simply tender their shares and Glencore gains control as soon as it gains a majority of shares (up from the current 35%). Under the former proposed deal approx. two-thirds of Xstrata’s shareholders excluding Glencore would have to vote in favor of a deal.
    2. The initially proposed governance structure with Xstrata’s CEO Mick Davis as the new CEO of the combined company is scrapped and Glencore’s CEO Ivan Glasenberg will take the helm of the new company.

    Official reaction by Xstrata’s independent directors

  • The exact details of the new structure are not yet known, as Glencore is yet to submit the new bid. The implications for the position and potential retention packages for Xstrata’s current top managers and the name of the new company will become clear when the new bid is published.
  • Sources: Financial Times 1 2 3; Wall Street Journal 1 2 3; Reuters; BusinessWeek

Trends & Implications:

  • Facing the likely rejection of the merger bid Glencore had little to lose in changing the terms for the offer. The likelihood of a takeover offer being accepted is much higher than the stakes the merger was going to happen on the proposed terms. Xstrata’s shareholders know that their changes of getting an even better deal than what is offered now are very slim and that they face an immediate drop in Xstrata’s share price if Glencore doesn’t gain control.
  • The offer values Xstrata roughly $4bn higher, but as the company holds 35% of Xstrata already it would cost Glencore approx. $2-3bn extra. If the deal was canceled Xstrata’s share price was likely to lose the roughly 10% in value resulting from Glencore’s bid, amounting to a loss of $1-2bn for Glencore.
  • The sudden governance change to try to make Ivan Glasenberg CEO of the new company is hard to understand. The merger setup was criticized earlier because of the strong focus on keeping Xstrata’s executives on board with generous retention bonuses. Either Glencore’s leadership never really believed they will not be able to achieve the same results as Xstrata’s leadership or they will keep most of the retention controls in place in the new offer.

2012 | Wilfred Visser | thebusinessofmining.com

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Rio Tinto Assumes Control of Riversdale

April 12, 2011 Comments off

“Rio Tinto said Friday it has assumed control of Riversdale Mining Ltd., as its interest in the Africa-focused coal producer rose above 50%, and could increase further before the takeover offer closes April 20. Riversdale has already appointed three Rio Tinto nominees to its board, including energy division Chief Executive Doug Ritchie, and Rio Tinto said other appointments are expected to follow.

‘The new Riversdale board will reflect our majority shareholding and help clear the way for the development of Riversdale’s assets as quickly as possible,’ Mr. Ritchie said in a statement.”

Source: Wall Street Journal, April 8 2011

Observations:

  • Rio Tinto managed to secure control of Riversdale in about 4 months time, the first approaches made in December. For some time an Indian state-backed coal consortium was looking at making a bid, but no competing bids were ever made.
  • The offer deadline at A$16.50 per share is extended to April 20th. Any shareholder that did not yet commit shares can decide to sell at this price up to next Wednesday. As a result Rio Tinto will end up with slightly more than 50% of the shares.

Implications:

  • The resulting shareholder structure is not unfavorable to Rio Tinto. It has full control over the assets, but at the same time can count on support from Tata for supply agreements. In the current configuration only CSN might not be very satisfied with the change of control. Time will teach whether or not CSN management will try to sell the stake.
  • In earlier stages Rio Tinto was reported to want to replace Riversdale’s management. Most likely the appointment of several directors is used as a means to get full understanding of the company, after which management changes will be made.

©2011 | Wilfred Visser | thebusinessofmining.com

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