Commodities trader Glencore International has trimmed back its proposed purchase of Verny Capital's stake in Kazzinc, the Kazakhstan zinc producer. As well, it has lowered the cash component of the transaction.
The deal has been brewing since April of last year, when Glencore, which already has a 50.7% stake in Kazzinc, said it had conditionally agreed up to 48.73% of the zinc producer from Verny.
That plan has now been scrapped, and the two parties have agreed on the sale by Verny of an 18.91% stake in Kazzinc which will increase Glencore's holding to 69.81%. The deal is subject to a number of conditions, including approval from the Kazakhstan authorities.
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The consideration payable will involve the issue of at least 176.8m Glencore shares and, in certain circumstances, a cash component. The consideration payable is linked to the prevailing Glencore share price, although the top-up level required should Glencore shares take a dive will be capped at $400m, with Glencore having the option of making good the shortfall in shares, cash or both.
The above terms imply paying less cash in exchange for the increased stake. The company will now pay up to £863m -in shares and cash- to raise its stake to almost 70%.
At its initial public offering last year the company said it was targeting an increase to 93% for £1.975bn in cash and shares (for approximately £1.36bn in cash and £617m in new shares to be more precise).
Glencore has been under pressure - including from ratings agencies - to reduce the cash portion of the deal, given that a spin-off of Kazzincs gold unit is considered unlikely in the current environment.
The deal is expected to go through this year.
JH
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