So far this week I have concentrated on technology firms and their M&A or flotation activities. Focusing on the merger of Microsoft with Skype, or the IPOs of LinkedIn, Yandex and Baidu, we have seen how firms seek to build market power and gain savings through M&As, while in seeking a stock market flotation they look to access new sources of capital, promote their products, services or brands and gain status. By concentrating on a few key IPOs that have taken place in recent weeks we also have found out about some major tech firms in emerging markets such as in China and Russia.
Today’s entry is about Glencore, one of the world’s major commodity firms, which launched an IPO yesterday on the London Stock Exchange, valuing it at £36.5 bn. Formerly one of the most secretive of firms, Glencore’s IPO marks a change in direction for the company, as well as revealing much about its history, activities, the controversies surrounding it and why some analysts believe it to be ‘too big to fail’. This giant commodity business had revenues in 2010 of almost $145bn, employing more than 50,000 people through its subsidiaries. How would such a large firm come to fail and what would happen if it did?
How big is Glencore? Well, it controls half the world’s market in copper, significant shares in other metals, plus vast supplies of coal, gas, oil and grain. Such is the firm’s size that on flotation in London, it became the first company in 25 years (since BT and British Gas) to go straight in to the FTSE-100. Almost five hundred Glencore 'partners' are making in excess of $100m each from the flotation. Five employees become instant billionaires. This incredible wealth comes from the fact that these executives own almost a third of Glencore’s stock.
Glencore was formerly owned by Marc Rich, who famously needed a pardon from then US president Bill Clinton, after he fled the US facing charges of racketeering and trading commodities with Iran at the time of the US hostage crisis. He ran to Switzerland and built up the commodities firm, only leaving the company for financial reasons in the mid-80s. This is not the only controversial aspect of Glencore’s history: a recent Newsnight TV programme listed these as involving alleged tax evasion in Zambia, breaking agreements in Namibia, having mines repossessed in Bolivia, rows with indigenous peoples in Australia and recent allegations of bribery of government officials in Belgium.
The company’s chief executive Ivan Glasenberg has made clear that the reasons for Glencore’s going public involve providing the firm with a permanent equity base and access to the capital needed to acquire assets and to grow at a faster rate. The firm's chairman, Simon Murray, has voiced controversial opinions on women in the boardroom of top companies, immigrants and employing staff in Africa.
Controversy and commodities often go hand-in-hand, as Biz/ed has noted before in the case of oil trading firm, Trafigura. But in terms of the company’s performance, little seems able to shake Glencore’s status as the world’s biggest commodity trader. Even the below-par first day’s trading on the London Stock Exchange is unlikely to worry a company that can afford, it seems, to sit out market fears and commodity price crashes, confident that in general the future of this massive, murky company is bright, even if some of the reputations involved are not so unblemished.
Glencore is thought likely to seek a merger with global mining company, Xstrata, in which it already has a significant stake, on the back of its stock market flotation - indicating the often close link between a firm going public and its M&A activity. So what of the ‘too big to fail’ tag? According to a recent Bloomberg piece, the dangers lie in what remains in the shadows about companies like Glencore. Firms deemed too big to fail can destroy themselves by failing to manage risk properly. Glencore is largely unregulated and could pose systemic risk if it collapsed. This seems an unlikely scenario at present, but so did the bankruptcy of Lehman Brothers in 2008.