Activist investor sets out plan for Glencore coal demerger

An activist investor pressing Glencore to exit the world’s most polluting fossil fuel says the miner can spin off its coal division and reduce production by using a dual-share structure to maintain control.

Bluebell Capital Partners, a London-based hedge fund that has taken aim at Danone and is currently locked in a bitter battle with Belgian chemicals company Solvay, wrote to the miner and commodity trader last month setting out its demerger plan, which involves creating a separate coal company with A and B shares.

“The real debate should not be about ‘if’ Glencore should spin off coal, but ‘how’ a spin off should be executed, taking into account both financial and environmental considerations that support Glencore’s strategy to responsibly run down coal,” said the letter, which has been seen by the Financial Times.

Bluebell partners Giuseppe Bivona and Marco Taricco called on the London listed miner and commodity trader last year to separate its thermal coal business, arguing that it had become a barrier to investment.

Glencore’s new chief executive Gary Nagle pushed back against the idea, telling investors and analysts in December that it was in the best interests of the company and “the planet” to run down its mines over the next 30 years.

“We do not have any of our major investors asking to spin off coal,” Nagle said at the time. “In fact, they have come to realise . . . that perhaps spin-offs are the wrong scenario.”

That comment was interpreted by analysts and investors as a reference to Thungela, the South African coal business spun out of Anglo American. Shortly after that company began trading as a separate business last year, its CEO July Ndlovu signalled his intention to increase output.

Bluebell’s proposal is an attempt to address that problem, while allowing Glencore to press ahead with its run-down strategy, which the fund accepts as correct.

Under Bluebell’s proposed plan, Glencore would spin off the coal business with a dowry to fund mine rehabilitation and a dual class structure, which historically have been frowned upon by UK investors.

Glencore would retain “A” shares. These would give it control of the demerged company and marketing rights to all its coal but only a 9.09 per cent economic interest in its operations. Existing Glencore shareholders would get “B” shares and a 90.91 per cent economic interest.

“By decoupling governance and economic rights, Glencore would be able to continue to exercise responsible stewardship, whilst separating coal in the interests of shareholders,” the letter said.

Glencore declined to comment.

The company is expected to reveal an 80 per cent increase in adjusted earnings before interest, tax, depreciation and amortisation to $21.2bn when it reports annual results Tuesday thanks to rising prices for its key commodities, which include coal and copper. Analysts are also forecasting a $3bn cash return.

Since Nagle took the helm in July, shares in Swiss-based Glencore have risen 36 per cent and is now worth about $75bn, trading on a similar valuation to its peers even though it has a big coal business.

In the letter, Bluebell also points out that 10 per cent of Glencore’s capital is owned by groups who are members of DivestInvest, which is pushing investors to sell existing investments in fossil fuels within three to five years. It also says coal makes Glencore less attractive as a merger or takeover target for a rival.

“In addition, the significant exposure to coal makes Glencore a less attractive partner, as coal is effectively a ‘poison pill’ in an industry where further consolidation is needed and expected,” the letter said.

Activists are targeting a slew of UK companies in part because of their low valuations.

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