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| Glencore |
Years of extremely hard work and dedication to the Swiss producer and marketer of commodities are going to be a lot more visible when the company lists in London and Hong Kong next month, making multi-millionaires of the top staff, on paper at least.
Glencore’s dream team, which aside from chief executive Ivan Glasenberg comprises around ten heads and co-heads of departments, stands to be worth billions following the IPO of a 20% stake which values the company at up to $60 billion.
Traders at Glencore say the company will likely have a harder time dealing with the transparency of its senior executives’ worth than it will handling regulatory and reporting requirements that a listing will bring.
Although the amount of shares held by the top executives isn’t widely known, including within Glencore itself, the least wealthy of the team is expected to walk away with $1.5 billion, based on the company’s current valuation and internal, if unofficial, calculations by other staff.
But the likelihood of the company’s top executives resigning once the IPO is launched is slim. Glencore’s chief executive Ivan Glasenberg said earlier Thursday that “almost all the commodity department heads have spent their entire careers building Glencore into the world class business that it is today.”
“For the last ten years, Glencore has generated an average annual return on equity of 38%,” Mr. Glasenberg said. “We are all invested in the company for the long term—no partners are taking money off the table and we’re about to enter into the most exciting phase of our development. The top team has an average age of 45 years and everyone wishes to be part of the growth of this business going forward.”
Another key reason for this confidence in the commitment of the company’s staff is Swiss tax law, which is very favorable to Glencore’s staff. If staff hold onto their shares for five years, the proceeds of the eventual sale are treated as capital gains, which Switzerland doesn’t tax. This means it pays to stay a shareholder for at least five years following the IPO.
Glencore also locked in its employees for varying time periods a couple of years ago, but has been keen to stress the IPO isn’t about its partners cashing in during what is expected to be a highly lucrative float.
Junior traders have lock-ins of a year; some more senior partners have four-to five-year lock-ins. The lengths of the lock-ins are based on value of the shares holdings, the company said.
This doesn’t prevent Glencore executives from resigning, however, and sitting on their shares until the lock-ins expire, or holding onto them for much longer than the lock-in periods specified by the company.
Mr. Glasenberg said the lock-ins for the senior partners are staggered, meaning they could sell a certain portion of their shareholdings at various points through the lock-in periods, although he didn’t provide details.
Glencore traders say they expect some staff to leave at the end of the 364-day lock-in, allowing them to unlock the value of their stakes, which are still substantial.
But senior managers have a different calculation to make—they face the risk of their departments’ performance falling if they resign, making their shares worth less as the company’s value declines accordingly. Sticking around until they can cash in their shares would provide a much greater share price protection.
The flipside to all this is that the value of a publicly-owned company is no longer Glencore’s to determine, and a number of factors can negatively hit the share price that are out of its control.
The top ten executives are already financially secure enough not to worry and could have left a long time ago, meaning it’s not about money for them.
Glencore’s success is partly because it’s driven by type A personalities never happy with the status quo. Top executives push the message that their business should always seek to be more creative and penetrative, and staff say there’s constant pressure to grow, year-on-year, brick-building the business.
The IPO will allow the listed company access to the capital markets and provide it with funds that are cheaper and for longer than the privately-held Glencore.
Tier one and two assets that previously looked out of Glencore’s reach suddenly won’t look quite as far-fetched as targets, including other commodities producers and trading firms.
The transformative deals that could now be on the cards—including a possible tie-up with Swiss agricultural trader Louis Dreyfus and who knows what with Xstrata PLC, in which Glencore has a 34.5% stake—are all to come, and the top managers seem certain to go along for the ride.
Sources: http://blogs.wsj.com
