The chief executive of commodity giant Glencore International PLC (GLEN.LN) said the share swap ratio in its proposed merger of equals with Xstrata PLC (XTA.LN) is fair, and that his job now is to convince Xstrata's shareholders why the deal makes sense at the current valuation.
The chief executive of commodity giant Glencore International PLC
(GLEN.LN) said the share swap ratio in its proposed merger of equals with
Xstrata PLC (XTA.LN) is fair, and that his job now is to convince Xstrata's
shareholders why the deal makes sense at the current valuation.
Glencore has agreed to issue 2.8 of its shares to Xstrata shareholders for
every Xstrata share held, as it seeks to create a commodities juggernaut with a
market capitalization, at the time of announcement, of around $90 billion and
assets in oil, base metals, precious metals, shipping and agriculture. Four
Xstrata shareholders, accounting for nearly 5% of the company's total
outstanding capital, have said this isn't sufficient. About 16.4% of Xstrata's
voting shareholders need reject the deal to block it.
"We believe it is a very fair price. It is a price that has been accepted
by the Xstrata CEO, unanimously accepted by the [Xstrata] board and proposed by
the board to the their shareholders," Ivan Glasenberg told Dow Jones
Newswires Monday.
Glasenberg said Glencore's management will now go on a roadshow, in which it
will meet with Xstrata shareholders who don't own Glencore shares, to better
explain what he sees as misconceptions about Glencore's business--the quality
and size of its industrial assets and the way its marketing business operates.
"Our job now is to visit the Xstrata shareholders and try to convince them
that the [Glencore] paper they are getting is good paper," Glasenberg
said. "We have to explain to them a bit more of the Glencore model."
He declined to comment on whether there was scope to increase the share swap
ratio.
A Dow Jones poll of seven analysts show that Glencore will likely have to bump
up the ratio to 3.0 to secure a favorable vote from Xstrata's shareholders.
Glasenberg said the current deal represents an attractive premium to Xstrata
shareholders, particularly since Xstrata's management will hold many of the top
jobs in the merged company and a merger of equals usually doesn't have very
large premiums.
Glasenberg said that his company has "tier-one, low-cost producing
assets," as evidenced in the Congolese Katanga and Mutanda copper mines
that are mining "higher grades of copper than any mine in the world"
and have long lives of 40-50 years, he said. Similarly, the Prodeco coal mine
in
Colombia
and
Kazzinc's gold operations are also low-cost, tier-one assets, he said.
Glasenberg also said his job was to convince Xstrata's shareholders that
Glencore's marketing business isn't a platform for speculative derivatives
trading, but rather a logistics business which generates profits by, for
instance, blending products to better suit customer needs and directing
shipments to benefit from discrepancies in regional commodity pricing.
Glasenberg also said that Glencore's investment model is focused on generating
high return on equity, not just on building a mine for the sake of building a
mine. He said that the company has generated 35%-60% average annual return on
equity since it was founded 37 years ago.
Glasenberg will begin a roadshow, along with Chief Financial Officer Steve
Kalmin, to explain the merits of the Glencore business to Xstrata shareholders,
ahead of a second roadshow, in April, with Xstrata's Chief Executive Mick
Davis.
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