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Glasenberg Breaks Word on Equal With Xstrata Merger Near

By Jesse Riseborough
November 19, 2012 12:20 PM EST
Glencore International Plc’s Ivan Glasenberg’s quest for Xstrata follows a 24 percent plunge in coal prices in the past year, caused in part by the U.S. shale gas revolution.
Photographer: Andrey Rudakov/Bloomberg
Glencore International Plc’s Ivan Glasenberg’s quest for Xstrata follows a 24 percent plunge in coal prices in the past year, caused in part by the U.S. shale gas revolution.

When Ivan Glasenberg walked into a members-only club in London’s Mayfair district on Sept. 7 at about 2 a.m. to see a customer, he’d just played what’s seen as the winning hand in negotiations to seal a $30 billion takeover.

Few patrons knew the billionaire chief executive officer of Glencore International Plc (GLEN) had just promised to add stock valued at $3.5 billion at the time to close the year’s biggest deal at the nearby Claridge’s hotel with the Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani, or that he was due at a shareholder meeting a few hours later in Switzerland.

In talks with the sheik mediated by former U.K. Prime Minister Tony Blair, Glasenberg had agreed to increase his offer for Xstrata Plc by 9 percent to overcome resistance from Qatar’s sovereign wealth fund, the largest opposing shareholder in Xstrata, a prize he had sought for five years. Glasenberg, 55, also staged a coup: He would run the combined company, sidelining his rival, Xstrata CEO Mick Davis.

“He’s a very tough businessman,” Andrew Michelmore, CEO of metals miner MMG Ltd., who has known Glasenberg since the 1990s, said in an interview. “He’s incredibly astute, he’s incredibly market-savvy. If you’re silly enough, or you’re not astute enough to realize the value you’re giving away, he’ll pick it up.”

Top Job

Moving for the top post-takeover job was an about-face by Glasenberg, whose 11th-hour sweetened bid goes before Xstrata investors tomorrow. And it was potentially risky. The two men had unveiled an agreement in February of a so-called merger of equals. As recently as June, the former accountant had told mining industry dinner guests at Lords Cricket Ground in London on a cool summer’s evening that he backed Davis, a fellow South African, to lead the new Glencore Xstrata International Plc.

“Mick is a key guy to keep in the company going forward,” he told a room at the 225-year-old sports ground packed with hundreds of mining executives, analysts and journalists during a rare public address. “I’m happy not to have the CEO job. Mick can do it great, he’s a great CEO, I’ll work alongside Mick but the title I don’t need because I’m a shareholder and I want to create shareholder value.”

Three months later on Sept. 7, Xstrata told shareholders gathered to vote on the offer in Zug, Switzerland, it had received a new proposal from Glencore, forcing delays in the long-anticipated votes by both shareholder groups. The development came about eight hours after Glasenberg had strolled into the Arts Club, where Charles Dickens was a regular in the 19th century and rapper Jay-Z and Rihanna have been seen in recent years.

Al-Thani Meeting

Glencore’s three-point, one-page proposal was the fruit of Glasenberg’s late-night negotiating session with Qatar’s al-Thani, who was coaxed to sit down with the CEO by Blair.

“It was an extraordinary piece of corporate fast-foot movement, like a very elegant dance,” said James Bevan, chief investment officer at CCLA Investment Management Ltd. in London. “For the next couple of years, ensuring that there is a cohesive single direction for the combined group requires an individual with enormous power, presence and charisma. And he has all three.”

Xstrata investors tomorrow will vote on the deal to create the world’s fourth-biggest mining company at a meeting in Zug’s Theater-Casino starting at 1 p.m. London time. Analysts expect shareholders to approve the takeover after the Qatar fund last week committed to backing the plan.

Xstrata shares traded near a record ratio to Glencore in London trading today, signaling investors will vote to approve the deal tomorrow. The stock closed 2.93 times higher than Glencore which compares to the offer of 3.05 Glencore shares.

Bonus Package

There is a chance the combination may backfire. A wholesale exit by Xstrata managers following Davis out the door is an unsettling thought to some longtime followers of the company -- particularly after Qatar Holding LLC said last week it would abstain from voting on a controversial 144 million-pound ($229 million) bonus plan designed to retain key personnel from the mining company. That’s raised the prospect of managers departing.

“We don’t think Glencore has the depth of operational management, given the size and scale of the mining business versus the mining business in Xstrata, to make sure the value isn’t compromised in this transition without the Xstrata management,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said Nov. 15.

The decision by Qatar to abstain from voting on the payments conflicts with the advice from Xstrata’s board, which last month told shareholders to vote in favor. A decision to de-link the vote and the payments means the transaction can still proceed even if the incentives aren’t approved.

Davis Payout

Davis has declined to comment on Glasenberg’s decision to give himself the CEO job and hasn’t said what he plans to do post-merger. He will leave the company with a payout of about $13 million.

In the weeks leading up to the meeting with Qatar, Glasenberg took control of the deal, relying less on advisers as it neared the scheduled votes, a person familiar with the matter said. He had repeatedly rebuffed calls from Xstrata investors including Qatar Holding for a higher bid, saying he didn’t understand their logic and was prepared to move on should Qatar vote against his offer.

“When he has to be a tough trader, he’s a tough trader, and when he has to be a consummate gentleman, he’s capable of doing that very effectively,” Brian Gilbertson, chairman of Pallinghurst Resources Ltd. and a former CEO of BHP Billiton Ltd., said in an interview.

Instant Billionaire

Glencore’s May 2011 initial public offering made Glasenberg a billionaire on paper, his 16 percent stake valued at about $9.3 billion. He was paid a salary of 925,000 pounds for 2011 and entitled to a bonus of as much as double that, which he declined. Glasenberg reinvested his dividends last year, about $165 million, in Glencore stock.

He lives with his wife in Rueschlikon, a town on Lake Zurich, about 13 miles from Glencore’s Baar headquarters. They have two children.

Rueschlikon’s residents in December voted to lower the income tax rate by 7 percent to the lowest in the canton of Zurich. That decline was thanks in part to gains to the local coffers from tax paid by Glasenberg and other Glencore partners after the company sold $10 billion of shares in the IPO.

Glasenberg’s reputation among his peers and rivals is one of an astute trader, a fierce negotiator and charismatic dealmaker, traits honed over 28 years in the commodity trading business since he joined the predecessor firm, Marc Rich & Co., in 1984.

Olympic Standard

Since taking on the post of CEO in 2002, Glasenberg, who was once an Olympic-standard competitive walker, has expanded the company through a series of acquisitions. The most recent was a C$6.1 billion ($6.1 billion) transaction to buy Canada’s Viterra Inc.

“He covers a lot of territory and has access to a lot of heads of state,” James Campbell, a former Anglo American Plc executive who was involved in one of Glasenberg’s early coal deals in the 1980s, said in an interview last year. “His modus operandi is active. Certainly you either like Ivan or you don’t. I’m not sure those who don’t like him can tell you why.”

Geography Teacher

Glasenberg was born in 1958 and grew up in Johannesburg. His geography teacher at Hyde Park High School, Kathy Caselli-Thomson, told the local Sunday Times newspaper in May last year her student was “not a terribly shy person and did not always accept that the teacher was correct.”

His Lithuanian immigrant father imported and distributed luggage. His brother Martin runs the 65-year-old family business, Elegant Travel Bags, in Johannesburg, the Sunday Times reported.

Ivan graduated in 1981 from South Africa’s University of the Witwatersrand with an accounting degree and earned a master of business administration degree two years later at the University of Southern California. Glasenberg is a fitness enthusiast, known to love early-morning runs and long bicycle rides.

Glasenberg, of Jewish descent, sought to compete in the 1984 Olympic Games under the Israeli flag, given that the apartheid system in his native South Africa meant the country was ostracized at the time. He participated in at least two track-walking competitions in the summer of that year and posted a time of 1 hour, 35 minutes and 3 seconds over the Olympic distance of 20,000 meters (12.4 miles), according to fellow competitor Shaul Ladany.

July Heat

While the time was competitive, the race was held during the heat of July and it was possible Glasenberg may have recorded a quicker time in cooler conditions, Ladany said. Glasenberg, who missed out on team selection, raced the same distance in the U.S. in a time of 1 hour and 28 minutes a few weeks later.

“He was always nice, he was courteous, friendly, approachable,” said Chris Rael, a fellow race walker who trained with Glasenberg in southern California in the 80s and is now USA National Race Walk senior team coordinator at USA Track & Field. “He never talked about money or business, so I would never have suspected that was what he’d become.”

Never Flustered

Chip Goodyear, a former CEO of BHP Billiton, said he has never seen Glasenberg flustered. “I’ve never seen him anxious about anything,” said Goodyear. “With all the things that he has going on in all parts of the world, I don’t think there is anything that happens, certainly in Glencore, that he doesn’t know about.”

Six months after completion of the Xstrata takeover, which Glasenberg and Davis have said took more than five years of planning, Glasenberg will take the helm of a vast global network of mines, smelters, ports, warehouses, grain terminals and trading-room floors where his firm gathers intelligence on commodity flows, moving cargoes by ship and rail.

The combined group will employ 130,000 people. Glencore will play a central role in the lives of consumers everywhere, supplying grains in cereal, fuel for cars, cotton for shirts and power for homes.

Glasenberg learned the commodities trade at Marc Rich, the eponymous firm founded in 1974 by the former U.S. fugitive who was celebrated for inventing the spot-oil market and spent 17 years evading U.S. justice. He would later be pardoned by then President Bill Clinton on his final day in office in 2001. That was criticized by a Congressional committee in a 2002 report that described the pardon of Rich and trading partner Pincus Green as “two of the most unjustified pardons in U.S. history.”

Rich Pardon

Clinton issued the pardons less than 12 hours before leaving the White House on Jan. 20, 2001. Rich and Green had fled the U.S. for Switzerland in 1983 just before being indicted on 65 counts of wire fraud, racketeering, trading with Iran amid a U.S. embargo, and evasion of $48 million in U.S. income taxes.

In a rare interview with Swiss magazine Bilanz published Sept. 18, Rich said the takeover would make it easier for the combined group to control commodity prices. He said he wasn’t surprised by Glasenberg snaring the CEO role at the group, declaring Davis a “typical finance man, but less of a trader.”

“It was always clear that Ivan wouldn’t stand back,” Rich said. “At most he would have stepped aside for a short while and intervened immediately if anything got out of hand. Glasenberg will always be the key figure.”

Exceptional Man

He’s “an exceptional man with a lot of experience and even greater energy,” the 77-year-old said. “I put him in charge of coal trading in South Africa. We still have a close relationship.”

After three years in the department, Glasenberg was asked to run group coal trading and transferred to Melbourne, before stints in Hong Kong and Shanghai.

“We turned it into a business, a money-making business,” Arye Berest, who worked with Rich from the start of the enterprise until 1989 and led the ferrochrome division, said by phone from Spain, where he now lives and runs a metals trading business.

‘Nothing Sinister’

“We took those positions, then we swapped them, we shipped them and made money by taking opportunities,” Berest said. “Rich brought trading to the fore. That’s how it is, there’s nothing sinister about it. They did not go out to do illegal deals. They were just a bunch of clever traders.”

Glasenberg was part of a $1.2 billion management buyout from Rich in 1994 which saw the company renamed Glencore.

He gives few interviews except to reporters when Glencore announces results, and was little known beyond commodity-trading circles before the IPO made him a billionaire. He declined to comment for this article.

His only real flirtation with public life prior to last year’s share sale came when Glencore was promoting an IPO of Australian and South African coal operations, Enex Resources Ltd., in 2001. Plans for the A$2.3 billion ($2.4 billion) share sale were destroyed by the U.S. terror attacks of Sept. 11. Glasenberg was among Enex management who were in New York on the morning of the attacks to meet potential investors.

Xstrata Growth

Those very assets would prove the link that reconnected Glasenberg with Davis. They had first met in the 1970s at Witwatersrand where Davis was a lecturer and Glasenberg a student. Fresh from helping to engineer an $11.6 billion mining merger of BHP Ltd. and Billiton Plc as the latter’s CFO, Davis led Xstrata’s 2002 London IPO, raising 1.47 billion pounds to fund the acquisition of 26 coal mines in Australia and South Africa from Glencore.

Glasenberg’s management and investments have landed him 125th on the Forbes World’s Richest People list for 2012.

“There is no skullduggery in it,” said MMG’s Michelmore, who sparred with Glasenberg on a number of transactions, including Xstrata’s failed bid for WMC Resources Ltd in 2005. “He can see value that other people can’t see, and he’ll drive the business hard to get that.”

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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