Glencore Bosses’ Payday: $23 Billion

Wall Street Journal

Glencore International AG, the private Swiss commodities trader, pulled back its veil further Wednesday as it prepares to enter the public markets, giving investors a clearer indication of the company’s value—and the $23 billion combined stake that will be owned by its top five executives, including Chief Executive Ivan Glasenberg. Glencore, which three weeks ago announced its intention to go public, on Wednesday provided prospective investors with a trove of new information. The company indicated that at the midpoint of its estimated valuation range it would be worth about $61 billion, including the issuance of new shares. Earlier figures released by Glencore implied a market valuation of up to $73 billion.

Baar, Switzerland-based Glencore also said that after it and existing shareholders sell roughly $10 billon of shares, Mr. Glasenberg, 54 years old, will own 15.8% of the company. Assuming a market value of around $61 billion, that would put his wealth at $9.6 billion—or 73rd on Forbes’ list of the world’s richest people, just above Italian Prime Minister Silvio Berlusconi. The remaining top four executives listed in the offering prospectus released Wednesday as the company’s largest shareholders, all of whom are under 50 years old, will own a combined 22% stake in Glencore following the IPO, or about $13.4 billion, using the midpoint of the range.

Glencore has always operated in relative secrecy, something seen as an advantage for its far-flung trading operation, and enjoyed a relatively light tax burden that is expected to rise as a result of the offering. Mr. Glasenberg has always declined to discuss his personal finances publicly. His need to disclose them highlights the price the company must pay to access the public markets. Glencore hasn’t had a smooth ride so far in the public glare. It took the unusual step of making the IPO announcement April 14th without having a chairman lined up. People familiar with the matter said at the time that that was because its first choice, former BP PLC CEO John Browne, got cold feet about taking the job. (Other people dispute that version of events.) Simon Murray, who was eventually named chairman, later drew criticism when he was quoted in a U.K. newspaper making derogatory comments about women for which he later apologized.

Shares are being offered to investors at between £4.80 and £5.80 apiece. The final offer price will be set May 19 and the shares will begin trading in London later that day. Shares begin trading in Hong Kong on May 25. At the top of the proposed price range, the IPO could raise as much as $10.8 billion. Should the company use an option to issue more shares in the event of strong demand, the IPO could increase to around $11.9 billion. Of the IPO’s expected proceeds, about $8 billion will go to the company and roughly $2 billion will go to existing Glencore shareholders who are selling some of their stock in the offering. One reason why the Glencore valuation is important is Mr. Glasenberg would like to use the IPO as a stepping stone to a full acquisition of Xstrata PLC, the miner in which it already owns a 34% stake. But Xstrata currently has a market value of roughly $70 billion, meaning swallowing it will be difficult for a company of Glencore’s size. The company, which has a dominant position in zinc, copper and lead trading, still must overcome investor questions about what many consider a complicated and hard-to-penetrate company operating at what some fear is the top of the commodity-price cycle. Some investors, citing the geopolitical risk stemming from Glencore’s presence in countries such as Zambia and Kazakhstan, say the price range is still too high. In a move partly aimed at reassuring those investors, Glencore said it lined up a group of so-called cornerstone investors who are purchasing $3.1 billion of its shares in the offering. That is an unusually large proportion and is being presented as a sign of confidence in the offering. The use of cornerstone investors is common in large Hong Kong IPOs.

They are big investors who receive large allocations in return for holding their shares for at least six months. Bankers originally sought to have cornerstone buyers take up 20% to 30% of the deal, people familiar with the matter said. The list of these investors is diverse, ranging from Swiss private banks to a Chinese miner. The biggest is Aabar Investments, an Abu Dhabi state-owned fund, which is investing $850 million, according to Glencore. Others include sovereign wealth fund Government of Singapore Investment Corp., which is investing $400 million, U.S. asset manager BlackRock Inc., which is buying $360 million of shares, and China’s Zijin Mining Group Co. which is investing $100 million. All are investors in its convertible bonds. Swiss lenders Credit Suisse Group AG, Pictet & Cie. and UBS AG as well as Fidelity, Eton Park Capital Management LP and Bain Capital’s public-equity affiliate Brookside Capital are among the others on the list. Glencore was founded in the 1970s by Marc Rich, who later became a fugitive from justice before famously being pardoned by President Clinton as he left office. Since taking over, Mr. Glasenberg and his partners have built Glencore into one of the world’s largest private companies, with sales last year of $145 billion.


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