Glencore Seen Still Hungry After Swallowing Xstrata
After years of on-off talks, months of brinksmanship and often bitter negotiations, Glencore's head Ivan Glasenberg gets to complete the $30 billion acquisition of Xstrata on Thursday, the mining industry's biggest takeover yet.
But even as the champagne pops, investors and rivals are asking where the highly ambitious South African will look for his next deal. Many are already pointing to vulnerable or undervalued rivals, including Anglo American.
"This is not the endgame, this is the beginning," analyst Chris LaFemina at Jefferies said.
"Glencore wants to buy when no one else wants to buy, and what no one else wants to buy - that is when no one else is bidding and you can buy things cheap. That time is clearly now."
Xstrata began just over a decade ago with a collection of zinc and ferroalloy assets and coal mines bought from Glencore, building itself up under now departing chief executive Mick Davis into one of the world's largest diversified miners.
The combination of commodities trader Glencore and producer Xstrata, long Glasenberg's ambition, creates a mining and trading powerhouse with over 100 mines around the world, some 130,000 employees, and an oil division with more ships than Britain's Royal Navy.
It will be the largest exporter of thermal coal and the third-largest producer of mined copper.
But South African-born Glasenberg, who has rattled rivals with forthright comments, such as recently telling them they had "screwed up", is not done.
"In terms of hunger, ambition, I can't see any reason why Ivan Glasenberg's ambition has been diminished as a consequence of this deal. He has a greater awareness of his ability to get deals of this scale done," said analyst Paul Gait at Sanford Bernstein in London.
Anglo American, one of the most frequently quoted of Glencore's larger potential targets, has been in team Glasenberg's sights before. He was a key shareholder when Xstrata made a move for Anglo in 2009, only to be rebuffed.
Anglo has now set itself on a turnaround path with a new CEO, but is still battling to overcome the impact of overruns at its $8.8 billion Minas-Rio iron ore project in Brazil and an unprecedented squeeze in platinum, where it faces weak prices, high costs and combative unions. Its shares trade at discount to the sum of the parts that some analysts put at 50 percent.
"I still see Anglo as vulnerable, and I see Glencore as a natural buyer for it," Gait said.
Glencore has already dismissed concerns that regulatory scrutiny of its deal with Xstrata - and remedies imposed by both the European Union and China - could stop other deals.
"There are companies, definitely larger companies, Glencore can continue to look at," Glasenberg said in March.
Anglo is also unlikely to be alone. Glencore's sprawling network of traders and its crucial on-the-ground knowledge will continue to throw up deals, from logistics buys to oil and mines - and with majors retreating and smaller players short of cash, Glasenberg may face little competition.
Investors, for now at least, are supportive.
"They clearly need to bed down Xstrata and if the strong dollar persists, then commodity prices will remain subdued and so will valuations ... they can sit back and wait," Mark Holden, senior fund manager at Ignis Asset Management, said. "That doesn't mean that if an opportunistic deal came up, that they wouldn't try to get involved - and so they should."
But it is Glasenberg-the-investor's pursuit of returns for shareholders at the expense of location, commodity or any other consideration that is seen likely to continue to impact a sector where investor demands for better returns and use of cash have led to a wave of change at the top.
Of the world's six biggest miners there is only one where there has not been a change of chief executive in the past two years - Glencore, where Glasenberg is also the firm's biggest single shareholder.
"He acts as more of a catalyst for change, given his personality and his take on the industry, than just the weight of the assets would suggest," Gait said.
Yet integrating Xstrata, a $46 billion company with a different corporate culture and assets across the world, will not be plain sailing for Glencore. Analysts say there is much attention on Glencore's ability to combine the companies while beating the synergies target of $500 million.
All but one of Xstrata's divisional chiefs have already left including Xstrata's head of copper - a metal which accounted for more than half the miner's profit last year. Glencore has shrugged off fears of an exodus at this level, saying it is more concerned with keeping managers on the ground.
But the bitterness left by its battle to win Xstrata was evident in a statement announcing the immediate departure of Mick Davis which carefully detailed the terms for his continued use of computers, office space and a plane.
According to industry sources Davis is now expected to set up a privately backed investment venture and could take former colleagues with him.
That team has also left gaps in the combined group's board, some of which Glencore could fill this week. Among the key spots open is that of chairman, left vacant after Xstrata's chairman John Bond, who had been due to take the combined group role, quit after a row over retention packages for Xstrata bosses.
The combined group's shares begin trading on May 3.