Activist calls on Glencore to spin off coal assets
An activist investor has called on commodities group
Glencore to spin off its thermal coal business, divest non-core assets and
improve corporate governance.
Bluebell Capital Partners, a London-based hedge fund that
previously took on Danone and GlaxoSmithKline, wrote to the miner and trader
earlier this month, urging it to “chart a new future” without coal, the world’s
most polluting fossil fuel.
In the letter, seen by the Financial Times, Bluebell advised
Glencore’s recently appointed chair Kalidas Madhavpeddi and chief executive
Gary Nagle that their company’s shares could rise 40 to 45 per cent over the
medium term if they followed the activist’s recommendations.
Despite managing a relatively low $200m of assets, Bluebell
has gained a reputation as a shrewd operator, fronting the campaign that led to
the ousting of Danone chief Emmanuel Faber in March.
As well as being a leading producer of battery metals such
as copper, Glencore is the world’s biggest exporter of thermal coal, which is
burnt in power stations to generate electricity. The unit is expected to make
billions of dollars this year off the back of surging prices.
However, Bluebell says Glencore’s plan to run down its coal
business and close all its mines within the next 30 years — a strategy that has
been backed by its biggest shareholders — is both “morally unacceptable and
financially flawed”.
“A clear separation between carbonised and decarbonised
assets is needed to increase shareholder value,” the letter said.
News of the activist’s intervention comes as Glencore
prepares to host its annual investor seminar on Thursday at which Nagle is
expected to lay out his strategic vision for the company.
The South Africa-born executive, who took the helm at the
end of June, has already said he would consider strategic options for the coal
business, such as a demerger, if it became an issue for large investors. He has
also been divesting non-core assets.
Bluebell, run by Marco Taricco and Giuseppe Bivona, has yet
to disclose the size of its investment in Glencore and declined to comment when
asked if it had discussed its proposals with Madhavpeddi and Nagle.
In a statement, Glencore said it “regularly” engaged with
its investors. “We are confident that our business model is uniquely placed to
produce, recycle, and market the materials needed to decarbonise energy whilst
reducing our own emissions and delivering value for stakeholders.”
Although shares in Glencore have risen 46 per cent to 358p
this year — the best performance among its peers — they remain below its 2011
flotation price of 530p.
Bluebell also believes Glencore’s operations are
“unreasonably complex”, with more than 150 production assets, “despite 90 per
cent of earnings before interest, tax and deprecation being generated by 14
assets” only.
While acknowledging Glencore’s recent sale of “subscale tail
assets”, Bluebell says the process needs to be accelerated and done in a more
structured way.
At the same, it wants Glencore to divest its near 50 per
cent stake in Canadian-based agribusiness Viterra and the proceeds returned to
shareholders. On that front, Nagle has said Glencore will work with its
Canadian partners to create value.
For the past three years, Glencore has been co-operating
with several regulatory investigations, including a US Department of Justice
probe into possible corruption and money laundering in Nigeria, Venezuela and
the Democratic Republic of Congo.
In light of those investigations, Bluebell wants the company
to “realign its governance best practices” and wants all of Glencore’s board
committees to be composed of a majority of independent directors excluding the
chair.
“We recognise that a company in your sector will always be
implicated in controversies, however, the sheer amount is a clear testament
that the existing governance framework is failing to provide proper oversight
and stewardship on the company’s operation,” the letter said.
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