Glencore’s friendly bid for Xstrata turns hostile – by Peter Koven (National Post – September 7, 2012)

The National Post is Canada’s second largest national paper.

 The biggest takeover bid of the year is shaping up as one of the most unusual, as a battle over money and control have changed the face of it overnight.
What started as a friendly takeover of mining giant Xstrata PLC by Glencore International PLC has turned into an apparent hostile bid, and Xstrata is threatening to reject it even though the new offer price is higher than the one it previously accepted.
The dramatic turn of events began Thursday night, when Glencore chief executive Ivan Glasenberg held a secret meeting with Qatari Prime Minister Hamad bin Jassim al-Thani. According to the Financial Times, Tony Blair brokered the deal that brought them together.
Glencore thought it locked up Xstrata back in February, when it offered 2.8 of its shares for each Xstrata share. But that plan was thrown into doubt when Qatar Holdings, the country’s sovereign wealth fund, acquired a large minority stake in Xstrata and pushed for a higher price.
With Xstrata shareholders likely to vote the deal down on Friday, Mr. Glasenberg tried to negotiate a new deal with Qatar on Thursday night. He succeeded: Qatar agreed in principle to a sweetened offer of 3.05 Glencore shares for each Xstrata share (or about US$36-billion).

However, Xstrata sees this new proposal as a possible hostile bid instead of a friendly tie-up, and believes the implied 17.6% premium is too low for such an offer. Zug, Switzerland-based Xstrata is also upset about Glencore’s proposal that Mr. Glasenberg would be CEO of the combined group, as well as possible changes to management incentives. The two companies previously agreed that Xstrata’s Mick Davis would hold the top job.

“The intention to replace Mick Davis as CEO and to amend the management incentive arrangements represents significant risk around the retention of the Xstrata senior and operational management intended to be responsible for approximately 80% of the combined group’s earnings,” Xstrata said in a statement.
Qatar is also unhappy about the proposed CEO change, according to reports. While it was satisfied with the dollar figures in Glencore’s higher offer, it was not anticipating a hostile bid.
BMO Capital Markets analyst Tony Robson agreed with Xstrata’s view that the 17.6% premium is too low for a potential hostile offer.

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