--Newly merged company's CEO says focus on integrating Glencore
and Xstrata, squeezing out every ounce of profit
--The CEO says he expects to fire a "big amount" of Xstrata
middle managers
--Also, the company will be on the lookout for the next deal,
though it will probably go slow on major acquisitions
(Adds details from interview with Glencore's CEO
throughout.)
By John W. Miller and Alex MacDonald
LONDON--As his $66 billion deal crossed the finish line Thursday
morning, Ivan Glasenberg, chief executive of the newly merged
Glencore Xstrata PLC, was worrying about the future instead of
celebrating that he and his brotherhood of swashbuckling traders
have emerged in control of a top-five global mining company.
As Glencore Xstrata shares start trading Friday, the focus is on
integrating the two companies, squeezing out every ounce of profit,
and watching for the next deal. "Not one glass of champagne will be
opened," said the 57-year-old former coal trader and Glencore
International PLC (GLNCY, GLEN.LN, 0805.HK) head in an interview
with The Wall Street Journal. "It's easy to buy. Prove that you
bought at the right time and the right price. I've never opened a
glass of champagne on any acquisition. Bankers do that."
Instead, Mr. Glasenberg said he dreads the possibility that the
Xstrata deal, years in the making, could prove to be an epic fail.
A botched merger, such as the 2000 deal between AOL Inc. (AOL) and
Time Warner Inc. (TWX), is "exactly what I fear ... every day,"
said Mr. Glasenberg, minutes after the merger formally cleared. "If
commodity prices stay low, someone will say, he got it wrong."
In the interview, the South African left no doubt that the new
company will retain all of the old Glencore's hard-charging DNA. He
explained why he sees no difference between politically volatile
nations that might seize assets and stable democracies that raise
taxes. He defended the company's Darwinian culture, in which he
said underlings "attack" their superiors if they perceive them to
be slacking off.
And the trader showed both that he is trying to adjust to life
heading a publicly traded company--and that it is hard. He extolled
the new company's corporate governance, even as he made it clear
that his team is in full control, saying Glencore "is still a
private company in a way" thanks to its large employee
stockholdings.
Mr. Glasenberg is even trying to tone down his in-your-face
style a bit. "I'm a CEO of a public company," he said. "You have to
show decorum."
Mr. Glasenberg said the success of the new company hinges on
strength in commodity prices such as copper, zinc and coal, which
have slumped since the merger was announced in February 2012,
sending Glencore International's share price tumbling 38%. The two
companies were pretty equal in terms of zinc and copper production
but not coal, where Xstrata PLC (XTA.LN) was a bigger player.
"It's a big play on coal," Mr. Glasenberg said. "To really screw
this up, the coal price has got to really tank."
Glencore Xstrata has a 100-day integration plan. Mr. Glasenberg
said he has visited every major Xstrata operation, discovered a
duplication of key tasks and expects to fire a "big amount" of
Xstrata middle managers. At least six senior Xstrata managers have
resigned, he said. "But all the mine managers are staying."
Mr. Glasenberg declined to give a figure for the layoffs. "It's
going to be big," he said. "We don't see the necessary reason for
these big business units."
Glencore Xstrata will stick to the combined company's committed
capital expenditures until 2015 but will then reassess investments.
Xstrata's new copper projects include Tampakan in the Philippines,
Alumbrera or El Pachon in Argentina or Frieda River in Papua New
Guinea.
"If it costs too much to maintain, we may have to sell them," he
said, referring to all projects the company would have to build
from scratch.
Meanwhile, the company will probably go slow on major
acquisitions, although it has already been linked as possibly
interested in mining companies such as Rio Tinto PLC (RIO, RIO.AU,
RIO.LN) and Eurasian Natural Resources Corp. PLC (ENRC.LN).
"Glencore has a job to consolidate Xstrata," Mr. Glasenberg
said. With $30 billion in net debt on the books as of Dec. 31, "you
can't make massive cash acquisitions unless commodities prices
really pick up. We always look at opportunities. We are not
aggressively looking to buy something."
If it does buy something, Mr. Glasenberg said, the target would
be determined by value rather that the price of the metal being
produced. "Let's say you're bearish on nickel," he said. "You can
buy a nickel asset cheap as hell, because people are so pessimistic
on it, and then you put in your forward curve, your nickel price,
it still gives you a 15 to 20% return, we'll buy that."
Mr. Glasenberg, who climbed to power as the chief executive of
then-commodity-trading house Glencore in 2002, brokered the merger
with Xstrata. He was slated to be deputy chief executive under
Xstrata Chief Executive Mick Davis until Xstrata shareholder Qatar
Holding LLC demanded a higher price for the deal. That led Glencore
to increase the ratio it was offering to 3.05 Glencore shares per
Xstrata share from 2.8, and to demand that Mr. Glasenberg take over
the top job.
"We decided if we are paying more we want to run the show," said
Mr. Glasenberg. "Do we feel better today that we're running this
thing, that it's under our control? Yes." However, added Mr.
Glasenberg, he was fully prepared to work with Mr. Davis.
Mr. Glasenberg owns 8% of the new, combined company, which has
raised concerns that he might need a counterweight at the top of
the firm. He said he would support a board that could keep him in
check. "They're going to tell me if I'm wrong," he said. For
example, if Qatar Holding wants to a member of the board and "own a
big chunk of the company, subject to nominations, I'd have no
problem with them being on the board."
Mr. Glasenberg said that in analyzing where to buy mines, he
doesn't favor wealthier, more established mining locales such as
Australia and Canada over emerging economies such as the Democratic
Republic of Congo or Colombia. "They may be more risky countries,
but they're giving me big returns," he said. "These big monster
assets [such as those in Australia and Brazil] are not giving me
the big returns because they've had big cost overruns."
One big reason the company prefers to invest in so-called
frontier nations is that, in a place such as the DRC, "we're more
important to the country, that we believe the country has less
chance of hurting us that in some of the bigger countries where
we're not that important," he said. Australia imposing a mining tax
in 2010 is akin to an "expropriation," he said, a risk as bad as
anything that might happen in the Congo.
"Once governments change the rules on you, whether it's
expropriations, taxes, royalties, whatever it is, they're sucking
the profits off you," he said. "I don't treat any of them
different. They're all the same. They're taking the money off you
in one form or another."
Whatever happens, he said, the new company wouldn't be wedded to
any single path. "I don't do: 'Here's my vision for this company in
the next 10 years,' " he said. "I don't have the vision of this
company. I just want to do the right thing and get massive return
on the equity, and I don't know where it's going to take me."
Write to John W. Miller at john.miller@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
