Glencore close to taking over Xstrata for $30 billion

LONDON - Reuters

Glencore’s logo is seen in front of the company’s headquarters in the Swiss town of Zug. The world’s largest diversified commodities trader seeks to buy out Xstrata. REUTERS photo

Glencore will this week move into the final stage of its long-awaited $30 billion takeover of miner
Xstrata, as shareholders are sent detailed documents on the deal, kicking off a last charm offensive ahead of July votes.

But Xstrata investors hoping for an improvement to the all-share offer are likely to be disappointed, at least for now.

That is because of technical changes set to support Glencore shares over the coming weeks, share sales by prominent naysayers and stake-building by Qatar, whose sovereign wealth fund now has more than 9 percent of Xstrata and is expected to back the deal.

Glencore, which already owns almost 34 percent of the miner, is offering 2.8 new shares for every Xstrata share held to conclude its long-standing plan to create an integrated mining and trading powerhouse.

Those terms will likely be confirmed in the documents, due out by 31 May, though Glencore can still increase the bid up until a few days before shareholders vote.

“Qatar seems reasonably likely to approve the 2.8 ratio. So given that, the chances of an increase in the ratio from 2.8 to something modestly above have probably lessened slightly, and the probability the deal will get done has increased,” Nik Stanojevic, an analyst at Brewin Dolphin, said.

Glencore shares closed on May 25 at almost 346 pence, with Xstrata at about 912 pence, below the level implied by the offer.

The time value of money - a convention that says money held now has a higher value than money promised in future - implies investors are expecting the deal to go through roughly on current terms.
 
“We continue to see negligible scope for a “bump” to the terms and larger downside risks for Xstrata shareholders in the increasingly unlikely event that the deal is voted down,” Liberum analysts said in a note on Friday.
 
Ingredients that helped Glencore, they said, included an increased focus on the rising cost of new greenfield projects - a bonus for the trading giant which has bet on low capital intensity, brownfield growth.

But the last round of meetings after the documents are published will be crucial for Glencore, which needs the backing of minorities thanks to the deal structure.

It requires at least 75 percent of shareholders excluding Glencore to approve the offer, meaning opposition from investors representing more than 16.5 percent of Xstrata’s total shareholding would be enough to derail it.