Glasenberg's endurance under threat

Ivan Glasenberg has a well-earned reputation for endurance.

Ivan Glasenberg has a well-earned reputation for endurance.

But the former South African junior race walking champion will need to marshal all his reserves if he is to keep the $65 billion merger between commodities trader Glencore, the company he runs, and mining company Xstrata on track and avoid a possible exodus of management talent at Xstrata.

What just months ago loomed as a serious threat to the likes of mining rivals BHP Billiton and Rio Tinto, the merger between the two Zug-based operations now is in serious danger of unravelling, potentially creating a wealth of opportunities for rivals to cherry-pick senior Xstrata staff and destabilise the company.

A fortnight ago, the Qatar government's investment fund stunned the market when it rejected Glencore's merger terms, arguing it would not accept the 2.8 Glencore share swap offer for its 11 per cent stake in Xstrata, arguing it wanted Glencore to lift the offer to 3.25 shares for every Xstrata share. That effectively scuppered the merger and a furious Glasenberg said he would rather walk away from the transaction than budge on the price.

Since then, however, there has been a series of frantic meetings between advisers to Qatar Holdings and Glencore while Glasenberg apparently has met with Qatar Holdings chief Ahmad Mohamed Al-Sayed in London, although no agreement has yet been reached.

There is widespread speculation Glasenberg will succumb at the last minute and lift the terms to three Glencore shares for every Xstrata share.

Xstrata's shareholder meeting, which was to be held on Thursday, is now expected to be delayed until September although Glasenberg can continue haggling over a price until two weeks before the rescheduled meet. But a sense of urgency hangs over the negotiations with the month-long Ramadan fast due to begin on July 20.

The labyrinthine politics behind the painful merger process has exposed a potentially serious rift between the management of both companies.

A substantial portion of Glencore's value - and hence Glasenberg's estimated personal wealth of $7.4 billion - has been driven by the company's 35 per cent stake in Xstrata.

In the decade since it listed on the London Stock Exchange with a handful of smallish coal mines from Glencore, Xstrata has transformed itself into a global mining powerhouse under the steady hands of Mick Davis and his offsider Trevor Reid.

While they are among the highest paid miners on the London exchange, their wealth is dwarfed by that of Glasenberg who holds 15 per cent of Glencore, leading to an uneasy relationship.

Remuneration has been a key sticking point in the drawn-out negotiations, with Xstrata executives demanding retention payments of #219 million, which raised the ire of British institutions, an issue that now has been settled.

But if Glasenberg walks away from the merger, the retention payments evaporate, leaving 78 seriously disgruntled senior Xstrata managers possibly looking to jump ship.

Ironically, if the merger proceeds, Davis will end up as chief executive with Glasenberg as his deputy, an arrangement that has raised eyebrows among institutional investors as to how the pair will work together.

While both are forceful characters, Glasenberg has been described as a "one-man tornado" while Davis is far more measured and softly spoken.

While the action is taking place in London, Australia looms large for both operations.

Glasenberg holds an Australian passport and is the nation's second richest person after Gina Rinehart. His chief financial officer, Steve Kalmin, is also a South African-born Australian with an estimated wealth of more than half a billion dollars.

It was Australia that helped catapult Xstrata into the mining major league with its 2003 takeover of MIM Holdings. Exquisitely timed at the very beginning of the resources boom, it effectively doubled Xstrata's size and to this day remains one of the world's biggest underground mining operations. Xstrata is also one of Australia's biggest exporters of thermal coal with a range of mines in the Hunter Valley and Queensland.

Until its stockmarket debut a year ago, Glencore was among the most secretive of companies.

It was founded by controversial commodities trader Marc Rich, the man who spent decades as a fugitive and listed among America's 10 most wanted for tax fraud and embargo busting before Bill Clinton granted him a presidential pardon in his final few hours in office.

Glasenberg joined the company in 1984, eventually rising to be one of Rich's most trusted confidants.

Last month at a Melbourne Mining Club gathering at Lord's Cricket Ground in London, he confided that Glencore's float 12 months ago on the London exchange was designed to pay out some of the company's partners.

Since the listing, however, the share price has fallen 40 per cent, adding weight to claims that the Xstrata bid should be sweetened, although its price has fallen by a similar amount as the recent downturn in commodity prices has ravaged resource stocks.

The exact role of Qatar's sovereign wealth fund in this saga has baffled many observers. Initial speculation had it as an ally to Glasenberg to help push the deal through. Clearly, that was off the mark. Its sudden and surprising decision to go public a fortnight ago and reject the offer has turned the resources world on its head, at a time when both Rio Tinto and BHP Billiton would be looking at succession planning.

Glasenberg, the former marathon walking champion, will need to tread a fine line.

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