Wednesday, February 15, 2012

A Deep Dive Into Glencore (GLEN.L; XTA.L)

The denizens of Alphaville have been doing a longer-form post on Friday afternoons/Saturday mornings for the last couple months. I first noticed and linked in December's "Alphaville Goes Long Form: Asia's Hidden Mega QE".
They may have been at it longer but sometimes I'm sometimes slow on the uptake. Here's the latest.
From FT Alphaville:

‘orrible merger! Read all about it!
If he’s selling, I’m not buying. This was an excellent plan with last year’s public offer of Glencore shares. Dazzled by the fees and muzzled by the conflicts of interest, very few mining analysts were in a position to say what they thought. The result was a high pressure sales pitch, a willing suspension of disbelief among investors, and a 530p launch price that’s never been reached since.

So what about the converse – if he’s buying, should I be selling? Ivan Glasenberg, the architect of today’s Glencore, clearly yearns to merge. It’s not yet a year since the botched flotation, but so keen is he that he’s yielded the posts of chairman, chief executive and finance director to Xstrata as the price of agreement. This is either a demonstration of what a warm-hearted, selfless individual he really is, or a tacit admission that Glencore’s years of making killings from commodity trading are coming to an end.

There can be few people in the world who know more about this subject than he does. He understands that profits can be highly variable, and that successful trading demands a combination of nerve, timing, and ruthlessness. These are not qualities generally found in warm-hearted, selfless individuals. Glasenberg can see that Glencore needs Xstrata, a business which owns some of the world’s finest mines. He has the perfect platform to bid, in the shape of Glencore’s 34% stake in Xstrata, but the decision to put the two companies together using a tax-saving scheme of arrangement may be a strategic blunder.
In contrast to a straight takeover offer, a scheme can force a dissident minority into acceptance. But the first hurdle is much higher; 75% of voting shareholders must be in favour, and Glencore cannot vote its own shares. This arithmetic allows holders of 16.5 per cent of Xstrata shares to block the deal. Since not all shareholders will vote, the threshold is probably less than 15 per cent. As with the flotation, most of the best analysts are muzzled (the fees could total $100m) but the awkward squad, in the shape of fund managers from Standard LifeSchroders and Royal London are objecting strongly....MORE