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Sources also reveal US$17.3 billion new corporate credit lines on the wayץ
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Ivan Glasenberg / Getty
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/ By Clive Minchom /
About a month ago, on May 3rd 2013, Ivan Glasenberg finally closed his complicated and extended battle to merge Glencore with its 35% held affiliate Xstrata, to become the world’s biggest exporter of thermal coal for use in power stations. The newly combined company then commenced trading on the London Stock Exchange under its new name GlencoreXstrata Plc (GLEN: LSE) with the price falling modestly, by about 3%, since. Given that many mergers can result in substantial price falls post-closing this is a solid result so far and a vote of confidence in him by the company’s investors.
Closing a complicated deal is hard to do; living with it afterwards is really a completely new beginning and often just as difficult, as the merged entities learn to live with each other and the new power relationships takes hold – now with Ivan Glasenberg firmly in charge as CEO of the combined entity.
First, he made significant changes in the operating structure of the company’s newly wholly owned subsidiary Xstrata itself, with its then Chairman John Bond and its then CEO Mick Davis both ousted in the immediate aftermath of the merger.
New GlencoreXstrata Main Board Appointments
Now, today June 12th, Bloomberg reports that GlencoreXstrata is rejuvenating its own Main Board of Directors and has tapped former Morgan Stanley Chief Executive Officer John Mack among three new board members to replace departed directors from the former Xstrata. John Mack is joined by Peter Grauer, currently the Chairman of Bloomberg LP, the parent company of Bloomberg News, as new members of the Main Board acting as independent non-executive directors. Current senior GlencoreXstrata executive Peter Coates also becomes an executive director of GlencoreXstrata, the Baar, Switzerland-based company said today in a statement. He was formerly the CEO of Xstrata’s coal operations and also a non-executive director of the former Glencore.
Glencore’s $29 billion all-share takeover of Xstrata, completed last month, added coal, nickel, zinc and copper mines to its cotton-to-crude oil commodity trading empire, and in the process created the world’s fourth-biggest mining company.
Now all that is left to do at the Main Board level is to find a new, and highly qualified, independent Chairman for GlencoreXstrata itself. According to former BP Plc CEO Tony Hayward, presently acting as an interim Chairman on a temporary basis, in a statement issued by Glencore Xstrata, the company is consulting with its shareholders as it conducts the search for a new Chairman.
Illustrating some of the board machinations last month, the three former Xstrata directors Ian Strachan, Con Fauconnier and Peter Hooley, were rejected by shareholders at the company’s Annual General Meeting in Switzerland. A fourth, Steve Robson, quit hours before the AGM, which also saw the formal rejection of Chairman John Bond – with 81 percent of investors voting against him Once you are down you are really out it seems in this rarefied world of corporate titans, though frankly one should probably rarely feel sorry for the departure of such exalted figures as financially the path is usually a smooth one.
GlencoreXstrata Plc today ranks 21st in the benchmark FTSE 100 index by market value. The company has interests in more than 30 coal mines in Colombia, Africa and Australia, accounting for about 10 percent of global seaborne supplies of the fuel. It is also the fourth-biggest producer of mine copper and the third-largest of nickel, and employs about 190, 000 people in more than 50 countries across its industrial and trading divisions.
The newly-combined group now expects to generate synergies “well above” target of $500 million a year by combining with Xstrata, stated Chief Executive Officer Ivan Glasenberg last month. He is closing Xstrata’s Zug and London offices as well, as part of an effort to cut costs.
Financial Engineering
The biggest benefits of the merger however come from the realm of financial engineering – the combined entity will have a much larger equity base to support its leverage, and now has, as well, full access to the cash flows of its now wholly owned subsidiary to service its loans. In a turbulent world this is a highly desirable outcome, and was very much worth the extended and bruising corporate battles that ensued to bring it about.
As what would seem to be an immediate benefit Bloomberg also reports this morning that GlencoreXstrata will raise a new $17.3 billion loan after receiving more than $19 billion in commitments from banks, it says, quoting unofficial sources as follows: “according to four people with knowledge of the matter”.
A group of 80 lenders will provide the debt in a syndicated banking loan, including 29 committing $500 million each, said the people, who apparently asked not to be identified because the terms are private. The deal may complete this week.
GlencoreXstrata is said to be in part replacing previous loans with the new facilities, including $12.8 billion of credit lines obtained before it acquired Xstrata last month.
The revolving credit facilities, where money repaid can be borrowed again, comprise one-, three- and five-year tranches that pay initial interest margins from 80 basis points, or 0.8 percentage points, to 90 basis points above LIBOR (London interbank offered rate), according to data compiled by Bloomberg. A spokesman for GlencoreXstrata declined to comment on the financing. Bloomberg nevertheless reports that Royal Bank of Scotland Group Plc is leading the syndicate, with Banco Santander SA, Barclays Plc, Commerzbank AG and Societe Generale SA also apparently helping to arrange the debt.
Such post-acquisition refinancing is not unusual, and the speed with which it seems it is being put in place amply re-affirms the improved quality of the merged balance sheets that last month’s transaction brought about and indeed are, in part, why it was done in the first place.
About John Mack
John Mack, who is 68, stepped down as chairman of Morgan Stanley at the end of 2011, two years after leaving the CEO role he held at the Wall Street securities firm from 2005 until the end of 2009. While there he had boosted businesses including trading, private equity and mortgages, a strategy that backfired when the bank posted its first quarterly loss in 2007 on the eve of the financial crisis.
Since leaving as Morgan Stanley’s Chairman, he became an adviser to companies including buyout firm KKR & Co., where he signed on last year. Mack, who developed a reputation over the years for cutting costs, not only ran Morgan Stanley and Credit Suisse First Boston at separate times, but also did a brief stint in 2005 as the chairman of what was once the world’s largest hedge fund, Arthur Samberg’s Pequot Capital Management Inc.
About Peter Grauer
Currently the Chairman of Bloomberg Inc., the global financial media company that was founded in 1981. He was Chairman and Chief Executive Officer from 2002-2011 and has been a member of Bloomberg’s Board of Directors since 1996. Prior to this, he was Managing Director of Donaldson, Lufkin & Jenrette from 1992 to 2000 when DLJ was acquired by Credit Suisse First Boston and founder of DLJ Merchant Banking. He served as Managing Director and senior partner of CSFB Private Equity until 2002.
