Investors’ last fight over Glencore-Xstrata merger

Glencore announced this morning in a regulatory statement its final offer for merging with Xstrata at 3.05 Glencore shares for each Xstrata share, up from its initial proposal of 2.8.

The sweetened offer comes as Ivan Glasenberg, Glencore’s CEO, declared last Friday that significant governance changes were to take place should the deal go through, and that he would head the new company instead of Xstrata CEO Mick Davis.

The move, which made the deal look more like an outright takeover than the previously proclaimed ‘merger of equals’, shocked board members as well as investors at Xstrata. They firmly stated their opposition to the raid, unless an increased premium or cash element was brought in.

It seems Glencore has eventually offered some compromise over the final governance arrangements, suggesting that Xstrata’s Sir John Bond become chairman and Davis head the new entity during the first six months post-merger before handing over the reins to Glasenberg.

This new proposal hasn’t helped to rally investors, however, as it appears yesterday’s allies in the ‘Glenstrata’ project have become today’s opponents.

Qatar Holding, which has the power to single-handedly veto the merger with its 12 percent stake in Xstrata, ultimately announced it was agreeing to the new proposed ratio while simultaneously voicing concerns about the axing of Davis and his team. The sovereign wealth fund has yet to give its final decision.

Former UK prime minister Tony Blair reportedly brokered a negotiation session between Glasenberg and Qatar’s prime minister last Tuesday in an attempt to salvage the deal.

Standard Life, which has interests in both Glencore and Xstrata and had united with Schroders to reject the initial deal terms, announced it was supporting the new proposal and would get opposing board members ‘kicked out’ by calling an EGM, according to the Daily Telegraph.

But Schroders’ head of UK equities Richard Buxton says the new proposal ‘makes a mockery of the merger terms’. Schroders, which owns 0.5 percent of Xstrata, believes Davis should take on the leadership permanently after the merger, not Glasenberg.

Activist investor Knight Vinke, which owns 0.51 percent of Xstrata shares, has also rejected the revised proposal, arguing that the ratio offered still substantially undervalues the miner.

Investors are apparently not the only ones experiencing a change of heart. Glasenberg and Davis, nicknamed the Dealer and the Digger, both grew up in South Africa’s Jewish community and have been life-long friends as well as business allies.

Their plan to merge their assets into an integrated commodities powerhouse was no secret in the corporate world. It is unlikely, however, that the deal’s brutal shift from friendly merger to hostile takeover will help the transaction go smoothly.