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Posts Tagged ‘Hayward’

Xstrata awaits Glencore overtures

April 14, 2011 Comments off

“Xstrata’s silence speaks volumes. The miner is just waiting for a proposal after Ivan Glasenberg, the head of Glencore, made clear that he is gunning for the London-listed multinational, in which the commodities trader owns a 34 per cent stake.

Breaking a decade-long silence, Mr Glasenberg says he sees value in combining Glencore with Xstrata. ‘Why has that not happened? It is a value debate. Xstrata … seems more comfortable for Glencore to go public and get a market price before they may or may not enter into discussions,’ he adds.

In February, Mick Davis, Xstrata chief executive, raised the prospect of a merger too, telling analysts that the prospect of an independently listed Xstrata and Glencore is ‘unsustainable in the long term’.”

Source: Financial Times, April 12 2011

Observations:

  • Glencore plans to float 20% of the company, worth some $12bln, in an IPO. Current management will retain majority shareholdership.
  • Glencore today announced the composition of its new board of directors, which will include former BP CEO Tony Hayward and former Xstrata CEO Peter Coates.

Implications:

  • The trend to stronger integration of mining firms and trading firms (the trader’s value chain), which is exemplified by the potential Glencore/Xstrata merger, can also be seen in Chinese Minmetals’ foray into mining by forming MMR earlier and planning to acquire Equinox this month.
  • Now that it appears Glencore will IPO prior to merging with Xstrata, its options to combine the two firms are to buy all other shares of the company, to try to get 50%+ of the shares to enable financial consolidation, or to pursue a real (share exchange) merger. With Xstrata’s current market value of $67bln (and Glencore holding 34% of the shares) gaining control will cost Glencore at least $12bln, with a full takeover costing over $45bln.
  • Glencore will be able to use the $12bln raised in the IPO, could leverage this by taking on more debt, and could issue additional shares in a later stage to raise more capital, but it will likely try to convince Xstrata shareholders to accept Glencore shares as a (partial) payment. In this way the combined company will retain significant firepower to do additional opportunistic acquisitions.

©2011 | Wilfred Visser | thebusinessofmining.com

Glencore to reshape board as IPO looms

January 26, 2011 Comments off

“Glencore plans a board shake-up as the world’s largest trading house heads towards a $50bn-$60bn public listing in London in the second quarter of the year. The Swiss-based trading house is talking to many current and former executives in the natural resources world about potential roles as senior non-executive directors for its new board, according to people familiar with the discussions.

Ivan Glasenberg, the South African chief executive of Glencore, recently held talks with Tony Hayward, the former BP chief, about a role as non-executive director in the trading house. Glencore has also held talks with Chip Goodyear, the former chief executive of BHP Billiton, the world’s largest miner by market capitalisation.

Bankers expect Glencore will disclose its plans for a $50bn-$60bn IPO in mid-March, when the trading house reports its annual results. But the trader is keeping its options open and it could still seek a merger with Xstrata, the miner in which it owns a dominant 34 per cent stake.”

Source: Financial Times, January 23 2011

Observations:

  • Glencore is one of the world’s largest private companies. However, it is experiencing growth problems as it can’t raise money to grow by issuing more equity. Furthermore the company needs to prepare for enormous payouts to top executives leaving the firm, which could cause liquidity problems. Going public would solve these problems.
  • The trading house, owning large stakes of various mining companies, showed strong profit growth for Q3 of last year, mainly driven by booming agricultural commodity prices.

Implications:

  • Most likely Glencore will have to perform an IPO before it can merge with Xstrata, as this is the easiest way to figure out the value of the company. Estimates of valuation of the company are based on a bond it issued at the end of 2009 and on industry multiples (PER of 14-18).
  • Various insiders question the probability of success of a merger with Xstrata, as the corporate cultures of the extremely results-driven trading house and the more relaxed mining house could clash. A merger between the two companies would produce the first fully vertically integrated natural resources major, which could open the door to new ways of negotiating with clients and new types of contracts.

©2011 | Wilfred Visser | thebusinessofmining.com