The Art of Merging

The courtship of merging between two leading commodity and mining companies Glencore and Xstrata has been a tale of twists and turns.  Already seven months and running, it has left everybody either confused or frustrated; and outsiders, disheartened otherwise amused.

Now, let’s take a glimpse of some key developments in their story.

Glencore offered a share-exchange ratio of 2.8 times.  Qatari Holdings, one of Xstrata’s largest shareholders, called for an increase to 3.25 a few months ago.  Ivan Glasenberg, Glencore’s CEO, rejected the proposal but weeks later increased the bid from 2.8 to 3.05.  This on-and-off affair would include making Mick Davis, Xstrata’s CEO, as interim chief executive for six months before Glasenberg takes over among others.  (see latest link below)

Well, what does each party really want?  Preferred share-exchange ratio, and for Glencore, control and talent.  Both organizations understand that merging would make them competitive.  But, why isn’t there a deal yet?

Some things are just not right.  Some things need to get done and some needs to be reminded of.

  • Let the merger issue go for a while, for the last time.  Give more time and space to calm down and reflect on things – at this point, focus on work, your organization, your market.
  • In deal-making, practice the “old” philosophy of win/win for long term success.  Do not have hidden agendas but be truthful, fair, and transparent.  Remember, every party on the negotiating table wants a great share – that’s human nature.  Yet, try to focus more on objectives instead of personal wishes then things will fall into place.  Learn to listen – really listen.
  • Avoid meeting and publicity if there is no clear solution or acceptable alternative.  Protracted talks, specially those publicized and unfruitful, not only drains but turns selfish and hostile that the promise of a happy marriage becomes something like rape.

In Offers…

  • Compensate your merged top talents with a package according to how you project your company would evolve and not simply based on their past remuneration.  Do not undermine or overdo it.  This way, you value and really mean business.
  • If your share-exchange ratio is not possible at that time – work on a deal that would increase the offered share towards your preferred share in time.  Never heard of it?  Then be the first.  It may seem like a “commissioning” system, but – at the very least, the merger turned the organizations into a competitive giant which would be great for you and everybody long term.
  • Leadership is crucial, specially in mergers, as one has to integrate culture and personnel with objectives.  Thus, do not try to get it through bribery, or anything unrighteous, or even with greater shares.  Get the vote of confidence from the entity’s shareholders through your vision and ability.  Mind you, your track record speaks only of your exposure to the industry but timing has a lot to do with success.

It’s not a perfect world, others would still scheme but even so, in all, be guided by fairness, objectives, and a timetable.  Deals should not be agonizing if only proposals are not choking but reasonable.  Now, the LATEST:  Xstrata’s board is said to endorse Glencore’s latest proposal.  Finally an end in sight?

Once reason is on the table – it’s take it or leave it.

What’s your take?