Commodities giant Glencore International PLC sweetened its offer to acquire mining powerhouse Xstrata PLC, bowing to investor demands as it struggles to bolster cash flow and offset falling commodity prices with new sources of income.
After insisting for months that the all-stock offer was fair, Glencore chief executive officer Ivan Glasenberg proposed to pay 3.05 Glencore shares for every Xstrata share, up from an earlier merger ratio of 2.8 Glencore shares and meeting shareholders' demands halfway.
"This looks like an old-fashioned gentleman's agreement between mining barons," said Charles Gibson, head of mining at Edison Investment Research in London.
"In the end, they split the difference almost exactly down the middle."
The eleventh-hour move by Baar, Switzerland-based Glencore signals a note of urgency, coming just as Xstrata shareholders were poised to vote down the bid already on the table, valued at $34-billion and the largest proposed takeover of the year in any industry.
Analysts say debt-burdened Glencore needs Xstrata for its cash-generating portfolio of long-life mines in safe jurisdictions.
Xstrata could benefit from Glencore's powerful marketing machine, proven across agricultural, oil and gas and metals divisions.
Glencore is eager to create new sources of capital as margins are squeezed in a commodity market slowdown that comes as No. 1 consumer China comes off a decade of massive growth.
Glencore's new approach may not be entirely friendly. It includes a condition that Mr. Glasenberg run the merged company, reversing the original plan for Xstrata chief Mick Davis to take the helm.
Other Xstrata senior managers are not expected to move to the merged company, "which lends weight to the possibility that the scheme of arrangement has now turned to a hostile takeover," BMO Nesbitt Burns analyst Tony Robson wrote in a report.
A deal with Xstrata has been on the table since February, and was hinted at for even longer. The agreement stumbled in June, when Qatar Holdings, a global investment house holding 12 per cent of Xstrata stock, said it wanted 3.25 Glencore shares for each share of Xstrata.
Major shareholder Norges Bank Investment Management, a Norwegian sovereign fund, and other shareholders also called for a better deal.
Shareholders did not comment on the new offer, and Glencore would only confirm a vote on its original proposal had been postponed.
Glencore, already the world's largest commodities trader, is trying to turn itself into major producer as well, able to compete with the likes of BHP Billiton Ltd., the world's largest diversified miner, and close rivals Rio Tinto PLC and Vale SA.
Earlier this year, Glencore bought Canada's largest grain handler, Viterra Inc., in a friendly, $6.1-billion deal that underscored an aggressive growth trajectory mapped out since it was publicly listed in 2011.
The new proposal was welcomed by Xstrata investors, who drove the company's shares up 3.6 per cent in London even as the company warned there was no deal yet. Shares of Glencore were down 3.6 per cent in London, further suggesting a deal may not be guaranteed.
"This is not a firm offer," said Xstrata, postponing a vote on the Glencore takeover proposal until further notice. "Any elements of the proposal remain subject to change and the proposal remains subject to Xstrata PLC approval."
A merger would create the world's fifth-largest miner, still behind BHP Billiton and Rio Tinto, but ahead of Anglo American PLC, a company Xstrata tried to buy in 2009.
After nearly a decade of aggressive deal making under Mr. Davis, Xstrata is today a dominant miner that controls many of the world's largest and longest-life mines. In 2006, four years after going public, Xstrata completed its largest acquisition ever, the $18-billion takeover of Toronto-based Falconbridge Ltd.