The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders (20 page)

From his perch in Goldman’s Fleet Street office, Brett Olsher, now one of Xstrata’s top advisors on the deal, was thinking exactly the same thing. In his fifteen years of banking, few deals had ever been subject to quite such mean-spirited jockeying. Something, he felt, had to change.

Olsher invited all the deal’s bankers to huddle over strategy. On the Xstrata side, Goldman and Nomura, whose chief of banking, William Vereker, was advising the independent stakeholders, were in control. JPMorgan and Deutsche Bank were Xstrata’s brokers, the ones handling the investor relationships. On the other side, advising Glencore, were bankers from Morgan Stanley and Citigroup.

They met in Goldman’s tenth-floor conference center, where china and sea-kelp-scented soap created an elegant atmosphere. Meeting rooms were so private that their doors were fitted with covered peepholes.

At the appointed time, Olsher addressed the group. “Look, we can keep going the way we’re going, or try to get a deal done for these two guys,” he said, referring to Glasenberg and Davis. “Why don’t we compare notes” on what shareholders were saying, he suggested, “and where we have different views, let’s get to the bottom of them.”

The bickering started almost immediately. “Shareholders are very angry with the MIAs,” said one of the Glencore bankers, referring to the compensation agreements, known as management incentive arrangements in Xstrata’s corporatespeak. “You need to restructure them.”

The Xstrata bankers said that wasn’t what they were hearing. In any case, they added, the team needed to press forward. “This is the deal that our clients have agreed to,” Olsher said. “So let’s talk about how we can jointly go out and get this deal across the line.”

Much of the group was unconvinced. “It was a bullshit meeting,” one of the other participants recalled. Realizing they were getting nowhere, Olsher and Vereker began setting up meetings with investors themselves.

Throughout the compensation tussle, Qatar Holding had been largely silent. Davis had by now been to Doha more than once, meeting with Al Thani—who in addition to running the mother company, was also Qatar’s prime minister—as well as with Ahmad al-Sayed. Qatar had repeatedly assured Xstrata of their support for the merger, but Davis had his doubts. Early that summer, with a July 12 merger vote drawing near, he asked Glasenberg what he thought.

“Are you sure the Qataris are there?” Davis said.

“Absolutely,” Glasenberg replied, describing himself and al-Sayed as good chums. “We instant-message each other all the time,” he said.

But on June 26, 2012, Glasenberg was working in the boardroom on Berkeley Street when al-Sayed called to give him a heads-up that Qatar Holding had had a change of heart about the deal. After careful consideration, Qatar had decided to oppose the Glencore-Xstrata merger on its announced terms, asking for 3.25 new Glencore shares for every old Xstrata one instead of the expected 2.8, al-Sayed explained.
A press release was soon to be issued.

Holy shit, Glasenberg thought, standing in the hallway where he’d gone to take the call. Opposition from Qatar, whose stake in
Xstrata was
10 percent at last check and could now be even larger, would be a total nightmare. His mind whirled, then snapped back into its familiar, stoic, place. He would figure it out somehow.

“Okay, Ahmad,” he said. “You want to play? Fine. Do it.” They hung up.

Glasenberg then threw together a conference call with his top executives, where he was so incensed he could barely describe the situation in polite terms.

“We’ve got this shit,” he sputtered to Alex Beard and his counterparts, explaining al-Sayed’s demand for 3.25 shares. “The guy wants more.”

The partners discussed it. The new ratio seemed pretty rich, they felt, maybe too rich to accept. If they stood their ground and the Qataris opposed the deal, that would squelch the combination they’d planned on. But Glencore still had a large blocking stake and could try yet again at some point. In the meantime, no one else could win Xstrata without Glencore’s support.

Davis and his colleagues were perversely thrilled. Qatar’s unexpected opposition not only created the possibility of greater wealth, but it also underscored the value of Xstrata and its management. So that all sides could digest the new proposal, the July merger vote was put off to early September.

July and August were a period of reflection for Glasenberg. Ever since that day in the Johannesburg boardroom when he had overheard two men conducting an international candle-wax trade, he’d had a passion for trading. To him, it was a game of nuance, of finding just the right angle and using leverage to push his agenda. But he had to think it through, and he had to come prepared.

He was loath to raise the price for Xstrata, especially when its business looked so weak. Struck by softening markets for coal, nickel, and zinc, the miner’s profits for the first half of the year
had fallen 42 percent, forcing it to trim spending. It was hardly the environment in which to sweeten a takeover deal, Glasenberg thought.

He had already tried logic with al-Sayed. “You’ve got to do this deal, because if you don’t, the share price of Xstrata falls,” Glasenberg had argued after the June 26 announcement. “You’re going to look bad” if that happens, he added.

“Fine,” al-Sayed replied, as if to challenge him.

Unfortunately for him, Glasenberg had no leverage. His opponent wasn’t some thinly capitalized hedge fund who would be squeezed out of his Xstrata position if forced to wait long enough. It was an enormous sovereign-wealth fund, basically a bottomless pit of money. A meeting with Al Thani, who could overrule al-Sayed, was going to be essential.

Then Michael Klein suggested a surprising go-between: Tony Blair. The former British prime minister was widely respected in the Middle East, where among other things he was working with Palestine to prepare it for statehood. Since leaving Downing Street, Blair had opened a consulting firm, and would surely be willing to help smooth relations between Qatar, Glencore, and Xstrata.

Glasenberg was willing to try it. During a trip to New York in early August, he met with Blair and Klein and articulated the deal’s latest snag.

After hearing Glasenberg out, Blair seemed amenable to the task. “I think I can help,” he said.

Later that month, Glencore posted its own first-half decline in
profits: 8 percent. Revenue had risen despite the fall in major commodity prices, and the marketing arm continued to perform. On a call with investors, Glasenberg was intransigent on the subject of Xstrata, insisting he would not change his terms. If the deal “doesn’t happen,” he said, “it’s not the
end of the world.” He criticized the Qatari investors, saying Glencore was the more attractive of the two companies.

Privately, Glasenberg theorized that al-Sayed’s move was an elaborate payback for not giving the Qataris discounted shares of Glencore eighteen months earlier. Qatar Holding had bought Xstrata shares as a cheaply valued entry point to a combined Glencore-Xstrata, he believed, but the miner’s subsequent stock spiral had cost the sovereign-wealth fund billions. Now it was attempting to make back the lost money with a higher share ratio from Glencore.

On September 4, 2012, Davis, Trevor Reid, and Thras Moraitis flew back to Doha for yet another sit-down with Qatari officials. With the all-important shareholder vote just three days away, the Qatari fund managers told them that Glencore had not budged.

“We’re standing our ground,” one of the officials said, not acknowledging al-Sayed’s recent conversation with Glasenberg. “Ivan hasn’t talked to us yet, and we’re not going to come to him.”

“He’s a trader,” Davis said. “He’ll come and see you at the last minute.”

Glasenberg, of course, had talked to his partners about raising the bid. Paying the full 3.25, they felt, was a nonstarter. But perhaps they could meet the Qataris in the middle. The sovereign-wealth fund now had a position in Xstrata
north of 12 percent, and with other dissenting shareholders tied to at least an
additional 4 percent of the company’s shares, meaning that at least 16 percent of investors were in opposition, the deal was almost certain to fall apart without a sweeter offer. The question was what that offer should be—and what terms Glencore could extract in return.

Glasenberg’s objective was clear: to run the combined companies himself. “If we’re going to pay a bit more, we’re going to run the show,” he argued to his fellow executives. They agreed.

Meetings for shareholders of both Glencore and Xstrata had been scheduled for the morning of Friday, September 7 in Zug. Glasenberg had been trying to arrange a meeting for himself, Al Thani, and Blair for some time. But the Qataris didn’t avail themselves until the very last minute.

Late on Thursday, the day before the vote, Glasenberg went over to the luxurious Claridge’s hotel in Mayfair, London, not far from Glencore’s office. Michael Klein, Tony Blair, and Michel Antakly, who had become Glasenberg’s most trusted banking advisor, were with him. Nicholas Schott, Spiro Youakim, and others were huddled in a meeting room nearby.

A collection of rooms had been booked upstairs, where the Qatari contingent, including al-Sayed and Prime Minister Al Thani, was situated. They kept the group waiting for a while.

Eventually, Glasenberg and Klein were summoned. The Glencore CEO made his final offer: to pay 3.05 shares for every Xstrata share—just a tick more than the median point between the original offer and Qatar’s counter—but only, Glasenberg said, “if we control the company.”

Some discussion followed, punctuated by side conversations in a corner of the room. The 3.05 ratio wasn’t what Qatar was demanding, but it was an improvement on the original rate.
However, scuttling the deal had its risks too. Qatar had made significant investments in the UK, including the luxury department store
Harrods and a huge skyscraper in London called the Shard, as well as a number of public companies. If Qatar caused the Glencore-Xstrata pact to fall apart, Blair argued to Al Thani, it might hurt British investors and their impression of the other country in general.

Qatar came around. The sovereign-wealth fund would accept Glasenberg’s revised price—but wouldn’t explicitly sign off on the governance changes.

“Work out the details with Mick,” al-Sayed said.

Glasenberg was satisfied. He left Claridge’s, went over to the London Arts Club for a drink with one of Glencore’s coal customers, and caught a 4
A.M.
flight back to Zug, where he went for an early-morning jog.