BlackRock Holds Key to Mining Merger – by Dana Cimilluca (Wall Street Journal – February 17, 2012)

This article is from the Wall Street Journal:

As mining giants Xstrata PLC and Glencore International AG aim to pull off an industry-redefining merger, the deal’s fate depends largely on one investor: BlackRock Inc.

With a 5.8% stake, BlackRock, the world’s largest money manager, was Xstrata’s largest shareholder after Glencore as of Feb. 14, according to FactSet. Glencore itself owns 34% of Xstrata.

Under the deal’s current structure, three-quarters of Xstrata shareholders would need to bless the union, which would create a firm with a market capitalization of $90 billion. Given that Xstrata governance rules, intended to protect minority shareholders, bar Glencore from voting its stake, it would be blocked if just over 16% of Xstrata shares are voted against the deal. The fact that opposition from such a small group could nix the deal gives BlackRock tremendous influence.

That sway is only amplified by the fact that several investors have already indicated they will vote against the deal on its current terms.

BlackRock officials have kept mum on how they intend to vote on the deal since it was announced earlier this month, and a spokeswoman declined to comment. But Evy Hambro, co-manager of the $12.4 billion World Mining Fund, where a big chunk of the firm’s Xstrata stake resides, is known for having strong opinions and not being shy in expressing them. Mr. Hambro is the son of mining magnate Peter Hambro and scion of a famous British banking family.

A BlackRock spokeswoman declined to make Evy Hambro available to comment.

Mr. Hambro has made his presence felt in the past. In an interview with Bloomberg Television in April 2008, Mr. Hambro blasted BHP Billiton’s hostile takeover bid for Rio Tinto, saying BHP—in which BlackRock holds a roughly 10% stake—was issuing too much stock in the deal and should walk away. Later, as the financial crisis raged, BHP did just that.

Now, the industry is watching carefully for signs—big or small—of how BlackRock will play its hand in this case. In a possible sign of how important Mr. Hambro is to the outcome, one of the key bankers on the deal, J.P. Morgan Chase & Co.’s Ian Hannam, dined with him in South Africa, where the two were attending a conference the night before the deal was unveiled, according to a person familiar with the matter. Another person added, though, that at least one other investor was present and the two men dine together each year at the conference.

While most of BlackRock’s Xstrata stake is held outside the World Mining Fund, the firm tends to vote all its shares as a block, though on occasion portfolio managers reach differing views. The fund is the biggest investor in many of the world’s largest mining companies, including BHP, the biggest.

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