Trader Glencore has raised its offer for miner Xstrata in a dramatic 11th-hour effort to rescue one of the sector's largest ever deals from collapse after opposition from rival shareholder Qatar.
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Glencore's Chief Executive Ivan Glasenberg, helped by a late intervention from former British prime minister Tony Blair, lived up to his reputation as an unpredictable dealmaker, with overnight talks with Qatar and dawn telephone calls on Friday that put the now $36 billion deal back on the table, sources familiar with the deal said.
Glencore, which has a 34 percent stake in Xstrata already, is proposing an offer of 3.05 new shares for every Xstrata share it does not already own, up from 2.8, a statement issued by Xstrata said. Qatar demanded a ratio of 3.25 in June, but in recent days sources involved in the deal had said the Gulf state's sovereign wealth fund could settle for a compromise.
The new proposal, however, would place Glasenberg as chief executive of the combined group instead of Xstrata boss Mick Davis, who would have taken the role under the original deal.
Davis's role, if any, in the future company is unclear, and the change could signal an end to the South African-born manager's career at Xstrata after a transformational decade at the helm. Looking tense and tired at Xstrata's shareholder meeting, Davis declined to comment on his plans.
A statement issued by Xstrata also said Glencore could consider changing the offer's structure, from a complex arrangement that requires 75 percent approval without Glencore, to a straightforward takeover requiring a simple majority.
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"We've always thought that there was a reasonably good chance that Glencore would bump the offer modestly, and we believe that Qatar will probably accept this 3.05," said Brewin Dolphin analyst Nik Stanojevic.
A source familiar with the deal said there were "constructive talks" ongoing, and Qatar was supportive of the offer. Qatar, which had not held talks with Glencore for two months before Thursday night, has not yet commented on the deal.
The revised offer pleased top-10 shareholder Standard Life and found wary support among other of Xstrata's institutional shareholders.
"We are supportive of the improved terms and the changes to the executive governance arrangements," said David Cumming, head of equities at Standard Life Investments.
"The deal will, we believe, enhance the growth prospects of the combined group and consequently, as shareholders both of Xstrata and Glencore, we are pleased with the proposed outcome."
BACK FROM BRINK
Glencore's bid had been heading for the rocks after Xstrata's second-largest shareholder, Qatar, with 12 percent, said it would vote down the deal unless it was improved.
Industry sources and those involved in the bid had not ruled out a last-minute handbrake turn from Glencore, but Glencore's Chairman Simon Murray shocked shareholders gathered in Zug, Switzerland, for a vote on the deal, by hurriedly cancelling the general meeting, citing "overnight developments".
Murray, alone, then rushed out of a back door.
Less than two hours later, Xstrata postponed its own meeting and announced the revised terms.
Xstrata shares were up 8 percent at 1,057.5 pence at 1215 GMT. Glencore's were down 3.8 percent at 377.3p, which would value each Xstrata share at almost 1,150.8p under the new ratio, virtually midway between Glencore's offer and Qatar's demands.
Under the deal's original structure, holders of just 16.5 percent of Xstrata shares would have needed to vote against the tie-up for the deal to collapse, and Qatar said last week it would vote against, making it very unlikely the bid could have gone through without an improvement.
Glencore on Friday, however, left the door open for a change to that structure to a straightforward takeover.
It is unclear Xstrata's board would accept that change, which would allow Glencore to buy shares offered in to a tender, as its non-executives had fought to ensure Glencore would either get full control of the miner or remain at 34 percent.
"The potential change of structure from scheme of arrangement to a takeover is significant," said one of Xstrata's largest 40 investors. "It makes forcing the deal through more likely."
Qatar and Glencore had not met since the Gulf state's sovereign wealth fund demanded an improvement in June to the trader's offer, and both sides had said they would stick to their positions.
"I'm very satisfied with the new terms. I think we would be disappointed if we were Glencore shareholders, but we are happy because we are Xstrata," said Thomas Mitsoulis, asset manager for an Xstrata shareholder.
Glencore, with a 34-percent stake, has long coveted a full tie-up with Xstrata to create a mining and trading powerhouse. It made its move in February, less than a year after listing its own shares, which in turn had been largely motivated by the desire to do more ambitious deals.
Glencore is being advised by Citigroup, Morgan Stanley , Credit Suisse and BNP Paribas. Xstrata is being advised by Deutsche Bank, JP Morgan , Goldman Sachs and Nomura, with a role also for Barclays Capital.
Both sides were advised by an independent consultant, former Citi banker Michael Klein, who shuttled between executives to broker the deal. Qatar Holding is being advised by Lazard.