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Brazil’s Vale approached Xstrata in late 2007 and discussions between the two companies commenced.
Things started to go wrong when Vale requested that Glencore take as much of the purchase consideration in shares as possible and become part of its voting pool.
“Glencore was happy to do that and we had almost finalised that agreement, but as a quid pro quo, Glencore said it wanted to have extensive marketing rights,” Mick Davis said.
Glencore wanted to retain its existing marketing rights in Xstrata, and to secure the marketing rights over Vale’s nickel and some of its aluminium, something Vale was not prepared to agree to.
“Then [Vale was] negotiating five-year terms and ten-year terms, and we reached a point where I said: ‘We are at stalemate, so we’re now going to call this whole thing off.’ I wrote to both parties and gave them a specific date to reach a deal, but they couldn’t come to an agreement,” Davis said.
“I think it’s sad they didn’t reach a deal, because I think it would have been hugely beneficial for Xstrata shareholders, including Glencore,” he added.
The failed deal did not cause any particular tension between Xstrata and Glencore, but it did cause anxiety among Xstrata shareholders, Davis said.
“Glencore was a shareholder and had to do what it thought was best for them. I didn’t agree with them, but it was their call; my job was to get the transaction in front of them,” he added.
Shareholder mood But the end to the discussions was a turning point for some of Xstrata’s other shareholders, particularly given that the deal collapsed just before commodity prices started to fall.
“The Vale deal created the first tension lines between Glencore and the other shareholders, who were starting to say, ‘Glencore’s objectives and our objectives are not necessarily aligned’,” Davis said.
“After that, we started to get a lot of pressure from people irrationally saying, can’t you get Glencore out of Xstrata?”
Had Vale decided that Glencore did not need to be part of the voting pool, the mining company could have simply brought the transaction to the board or to the market, Davis said.
“That would have been a much more interesting thing, because Vale would have put a price on the table for Xstrata, and that would have been a much more complex situation for Glencore than voting rights traded off against marketing rights. Glencore could have been put under a considerable amount of pressure to deal,” he said.
But Vale never put an unconditional deal to Xstrata, preventing the UK miner from taking the deal to the marketplace.
“So if anybody’s really to blame for that deal not happening, I think more of the blame rests on the way that Vale decided to enter the negotiations with their absolute concern about control and therefore wanting to tie Glencore to a control structure,” he said.
“To blame Glencore for that transaction not happening was unfair,” Davis added.