Glencore offers deal breaker terms to Xstrata in 'final offer'

It is perhaps the most turbulent betrothal in recent corporate history, but Glencore's acquisition of Xstrata could be on the cards again...

by Michael Northcott
Last Updated: 19 Aug 2013

It looks like the $80bn deal could be back on after Glencore’s boss Ivan Glasenberg offered new terms to Xstrata last night. In the latest proposals, which are with Xstrata’s board at the moment, Glasenberg has offered to up the ratio from 2.8 to 3.05 Glencore shares for every Xstrata share, as long as he can be the chairman of both companies after the merger. Glencore reckons this would represent a 27% premium, and it is thought that this will be the last attempt to get the deal done. Such a merger would create the fourth-largest mining company in the world.

Back in late August, Xstrata’s major shareholders the Qataris suddenly demanded more lucrative terms from the deal, prompting Glencore’s boss Ivan Glasenberg to play hardball. He said it was ‘not a must-do deal’, and hinted that his firm was not worried about losing out in any event. Playing it with a cool he may not have actually felt, we suspect. Glencore is already the largest shareholder in Xstrata with 34% of its shares, but it wants the rest and has spent months trying to get past the Qataris: they have enough equity in Xstrata to freeze the deal whenever they like.

The new proposals have come as a surprise to many since Glencore’s boss had insisted that he would not budge. But the devil is in the detail: the re-worked deal would see Xstrata’s current CEO Mick Davis cede control to Glasenberg after six months, and offers a handsome payout to Davis on his exit. He would pocket £8m in cash as well as shares worth around £28m. We don’t reckon Davis will be balking at the new deal with such serious cash on the table. And he is not the only one who stands to do well out of the deal – Glencore is keen to talk to shareholders about juicy retention packages to keep other senior Xstrata executives on board after Davis leaves.

It will be a while yet before Glencore gets an answer from its target: Xstrata said in a regulatory statement that it would respond to the offer no later than 24th September, two weeks from now. Shares in both firms were up this morning, suggesting that your bog standard investor wants the deal to go ahead. The City can only hope that Glasenberg and the Qataris do not find themselves at loggerheads once again…

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