How Glencore and Xstrata nailed the $76bn deal – by Danny Fortson (The Australian – February 6, 2012)

This article is from: http://www.theaustralian.com.au/

TUCKED in a corner of the Google bar at Davos, Ivan Glasenberg was in cracking form. Dark and intense, with his hair slicked back, the chief executive of Glencore sipped on a Diet Coke while chatting about mining and waving to acquaintances.

The World Economic Forum’s annual meeting is Glasenberg’s natural habitat. It is stuffed with billionaires — he himself is worth about pound stg. 5 billion ($7.3bn) — and world leaders, whom he courts, and who court him, thanks to his command of the most powerful commodities trader.

There was another, secret, reason for his good humour. Glasenberg was about to clinch a deal he had pursued for five years — a merger between Glencore and Xstrata, the FTSE 100 mining company that he helped create.

The $US82 billion ($76bn) merger, likely to be confirmed on Tuesday in London, is a personal coup for Glasenberg and Mick Davis, his counterpart at Xstrata. It also has profound ramifications for the world economy.

The marriage will unite Glencore’s army of razor-sharp traders — the Goldman Sachs of zinc, copper, iron ore, coal and oil — with Xstrata’s globe-spanning portfolio of mines, stretching from the Australian outback to South Africa and the Peruvian Andes.

The resulting entity would employ more than 120,000 people on five continents and be able to reap billions by providing us all with the basics of modern life, from the corn on your plate to the cutlery you use to eat it. A brash new player with that kind of power would be sure to give rivals and big consumers of raw materials, such as resources-hungry China, pause for thought.

They have had time to get used to the idea. Davis and Glasenberg have long talked about getting together. It was the proverbial worst-kept secret. Negotiations always broke down over value. Whose company was worth more? And, more important, who would be in charge?

Once Glencore floated in London last year, the conversation changed. For the first time, Glasenberg’s company, a mysterious money machine based in Baar, Switzerland, and owned by its fabulously remunerated traders, had a value everyone could understand. Its share price.

Given the sensitivities — and the history — the two sides needed someone who could act as a disinterested mediator. Michael Klein, former chief executive of Citigroup’s investment banking arm, who has recast himself as a consigliere to tycoons, has been working behind the scenes for more than a year.

With Klein as a go-between, Glasenberg and Davis agreed an outline of a nil-premium “merger of equals” by early December.

Davis kept the details tight, relying on his long-time adviser, Ian Hannam, JPMorgan Cazenove’s star deal-maker. Before Christmas, over a quiet dinner at a hotel in St James’s in London’s clubland, Davis and Glasenberg finally agreed to push the button.

It was only then that they called in reinforcements from other investment banks to nail down the details.

That raised the risk that the deal would leak but with the main points agreed, that was less of a concern. When news of the talks did break last week, it wasn’t a disaster. It had been a deal 10 years in the making.

WHAT do you get if you put an accountant, a former Roman Catholic priest and an investment banker together in a basement? If you know the punchline, you’ve heard the story of Xstrata.

It was 2001 and Mick Davis, a hard-charging mining executive, was at a loose end. He had just stepped down as finance director of Billiton, a miner founded in 1860 and named after the Indonesian island where it had its first tin mine.

For the rest of this article, please go to The Australian website: http://www.theaustralian.com.au/business/mergers-acquisitions/how-glencore-and-xstrata-nailed-the-76bn-deal/story-fn91vdzj-1226263172179

Comments are closed.