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Questions Raised Over Glasenberg U-Turn

Javier Blas, Financial Times

Ivan Glasenberg had argued for months that his offer for Xstrata of 2.8 Glencore shares for each of the London-listed miner's was 'generous'.

The Glencore logo seen in front of the Swiss commodities giant's headquarters in Baar.
Sebastian Derungs | AFP | Getty Images

When Ivan Glasenberg hit the treadmill at Glencore’s in-house gym early last Friday morning, he had 45 minutes of solitude to reflect on the consequences of the climbdown he had performed just hours before.

Commodities traders sink or swim by their reputation as tough negotiators. Mr. Glasenberg, who emerged from the highly combative trading world of the 1980s, exemplifies probably better than anyone the pugnacious dealmaking so characteristic of the sector.

But then, in the early hours of Friday, he performed a rare climbdown that could yet hurt — depending on the final outcome — his reputation as one of the most consummate commodities traders.

He had argued for months that his offer for Xstrata of 2.8 Glencore shares for each of the London-listed miner’s was “generous”, challenging dissidents to prove the need for a higher offer and even threatening to let the deal collapse because it was not a “must-have”.

But at the last moment he blinked. Less than eight hours before the deadline he offered Qatar Holding, the sovereign wealth fund that was opposing the merger, the sweetened offer the emirate had demanded since June.

The competitive Swiss-based commodities industry has a sense of schadenfreude over Mr. Glasenberg’s ploy. And even his supporters admit that the U-turn to save the $80 billion proposed merger is damaging. “It does tarnish his reputation,” says a person close to the 55-year-old South African.

As an executive of a rival trading house says: “It will impact his credibility in the [equity] market and his ability to negotiate future deals”.

Or, as a Swiss-based banker who works in commodities but is not involved in the current deal, says: “Once you have blinked once, everyone would anticipate you would blink again and again.”

The retreat also gives credence to the arguments of his critics, who say Mr. Glasenberg is desperate to snap up the miner to gain access to its much bigger balance sheet to finance growth.

Moreover, by effectively ripping up a deal Xstrata had agreed with him only minutes before the miner’s shareholder meeting, Mr. Glasenberg has also risked his counterparty’s support.

The risk of reputational damage was surely in Mr. Glasenberg’s mind as he completed his daily treadmill run.

He had flown out of London’s Luton airport at 4 a.m. after secret negotiations with Qatar Holding.

But he probably thought he had some good reasons for accepting any bruising: after all, he could say the new offer was different in structure to the one that Glencore and Xstrata announced seven months ago.

The deal unveiled in February was a “merger of equals” in which Mick Davis, Xstrata’s chief executive, would have run the enlarged company.

The new offer, however, is closer to a takeover in which Mr. Glasenberg would replace Mr. Davis as chief executive in six months, winning full control of the miner.

As such, a person close to him says he had “good reasons” to cave in to the Qataris’ demand of a higher share ratio “because running Xstrata as chief executive, he would be able to recoup the extra billions of dollars he is overspending” in no time.

And the creation of “Glenstrata” – the nickname of the planned merged entity – is by a long stretch the most important deal of his career.

Most critics, rivals and insiders agree that success in securing the deal would be worth the reputational taint created by any climbdown on price. The prize remains the creation of a natural resources giant with operations in production and trading stretching across commodities such as copper, coal, crude oil and wheat.

This narrative aimed at justifying the climbdown sounds plausible in the commodities trading world — even if some rivals and critics see it as nothing more than saving face.

The critics have a point: under the old terms, Mr. Glasenberg was going to be deputy chief executive and, crucially, the largest shareholder in the combined group. As such, he would have commanded significant influence.

The final impact on Mr. Glasenberg’s reputation as the ultimate dealmaker in commodities will not be known for months or probably years. All will depend on what value he will be able to extract from Glenstrata should a deal proceed.

Additional reporting by Anousha Sakoui in London