Ivan Glasenberg runs one of the world’s largest commodities and mining companies. What is his story?

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Ivan Glasenberg, Chief Executive, Glencore, wins the Person of the Year.

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Ivan Glasenberg, who today runs one of the world’s largest commodities and mining companies, Glencore, was born in South Africa, lives in Switzerland and today is a citizen of South Africa, of Australia and also of Israel: welcome to the globalized world we live in today.

He studied accounting first at the University of Witwatersrand and then Business Administration a the University of California.  He is Jewish, 55 years old, is married with two children and guards his family life carefully.

As CEO – and 15% owner – of Glencore International plc he heads one of the world’s largest commodity trading houses based in Geneva.  It used to be Marc Rich’s company, Marc Rich & Co, you may even remember March Rich as the guy who was pardoned by Bill Clinton – controversially so at the time – and Glasenberg worked for him first in their New York office when he entered the commodities business in 1984.  On Rich’s withdrawal from the business he and his partners took over the firm, buying it for just $600 million in 1994.

They re-named the company Glencore, which stood for “Global Energy Commodity Resources”.  As a strategy for profitable growth for the firm, Glencore diversified away from pure commodity trading, which is an agency business, into investing in physical mines as well just at the right time as a decade of booming commodity prices then ensued with the industrial rise of China.

Eventually Ivan Glasenberg rose to the top and became Glencore’s CEO in 2002.  You can imagine that he did so through brilliance, hard work, dedication, tough-mindedness and probably some luck and more than a little ruthlessness along the way.

Today Glencore controls 60% of the world’s zinc trade, 28% of the coal trade and 50% of the copper trade.  Glencore finally went to the public equity markets with an Initial Public Offering in London in May 2011 selling shares to the public in a transaction that raised $10 billion for the company and valued the whole entity at over $60 billion. Glasenberg’s stake was then worth around $10 billion and made him very rich indeed; in 2012 Forbes put his net worth at US$7.2 billion.

In going to public markets at that time Glencore raised money for the firm, helped potentially to put some money in the pockets of its partners by providing liquidity to their ownership, solidified the company’s balance sheet and, not least, brought much needed transparency to the operations of the business.  What had been for decades a highly secretive, very personal, form of trading partnership suddenly began to operate in the limelight of full international disclosure; where the people of Glencore, as well as its governance practices, its operating structures, its financial reporting, its international tax arrangements and its environmental footprints in the jurisdictions where it operates – all these now became much more accessible and open to scrutiny.

Nevertheless, while the share price has languished since, somewhat to Glasenberg’s annoyance, overall it has clearly been worth it, as successfully creating a publicly listed vehicle with the access to capital that it can bring becomes a key mechanism for continuing to manage growth in what can still, at the end of the day, be a highly cyclical business. When the mining business turns around it can bite you at any time – as Rio Tinto Group, BHP Billiton and Anglo American, who have all built-up in recent years through acquisitions financed by leverage, are all too painfully aware – and Glasenberg has publicly criticized them for it too.

Glencore has for a long time been big on coal, which has been for them a strategically sound decision as the industrial rise of China has been, and will likely continue to be for decades to come, dependent on access to plenty of coal.  Whilst they have a lot of coal in China of their own, in recent years it has been a net importer and has recently signed very large contracts to buy even more coal from Australia for example.

Over 70% of China’s electricity today is provided from coal-fired power stations and the increase in their capacity needs in the future to feed continued economic growth will, at the margin, inevitably remain coal-fired as well for some time to come with large numbers of new coal fired power plants planned there.  To date this has also created a huge environmental burden, both for China itself where the air in many cities can be close to un-breathable at times, and for the rest of the world as well in terms of total CO2 spewed into the atmosphere.

The problem is not just the coal itself, but the lack of scrubbers, which can separate out much of the pollution, on all the smoke stacks of ancient power plants that were not built with any thought for the environment at the time.  It is up to the Chinese to fix that through investment and one can imagine that in their own interests they will; it is imperative indeed that they do and almost certainly they will with their new power plants and, also retro-fit many of the old ones.

For Glasenberg having a public vehicle in Glencore therefore became the key for engineering further significant transactions on a conservative basis, by acquiring acquisition targets by way of merger rather than acquisition for cash, with the strategic goal of helping to reinforce the company’s competitive position in the business areas where it predominates.

To cement his reputation as the King of Coal, and to continue to supply the growth in coal demand from China and other Asian markets that is projected, in February of 2012 Glasenberg made a formal public bid to merge Glencore with the Australian coal mining giant Xstrata by way of a share exchange.  Since Glencore already owned 35% of Xstrata, and indeed had been a very early shareholder of the company, a full merger made a lot of sense as, even though at the time it was billed as a merger of equals, in reality it would provide Glencore with management control of a company it regarded as key to its own future.

As well, and perhaps just as important, a merger would provide Glencore with full access to Xstrata’s cash flows rather than being restricted to just receive dividends.  By offering shares in exchange, as payment, the total equity of the resulting firm would also expand providing a much stronger equity component in the consolidated Glencore balance sheet, something that gladdens the hearts of international bankers and stock analysts as well.  At a time of reduced growth in China, even if only temporary, probably a very prudent decision to make at the time.

Making the bid is one thing however and pulling it off is quite another, though Glasenberg now appears to have succeeded – clambering over a number of significant hurdles one at a time.  One major impediment occurred when the Sovereign Wealth Fund of Qatar, who could clearly see the financial engineering advantages to Glencore of the merger, built up a large arbitrage position of their own in order to block a deal and force up the price.  They did this very successfully and Glencore has had to pony-up and increase the value of the bid.  In the process they have been able to insist on their own board and management slate for the soon-to-be acquired entity, so it has not all been bad.

The deal is now projected to finally close on April 16^th 2013 at a valuation of $76 billion after obtaining all necessary regulatory approvals in the countries in which it operates – at the last count it was China, perhaps not surprisingly, which has still been holding things up.

Once the deal is done maybe Glasenberg can go back to his original sport of speed-walking, where he came close to competing in the Olympics once for Israel and where, just like stalking a corporate acquisition target, the goal is to get somewhere quickly while it looks as though you are only walking!