Alex MacDonald’s article “Arbitrage funds rally to back Glencore-Xstrata Merger” (Wall Street Journal, 11/13/2012) discusses the role of arbitrage funds in the voting on Glencore-Xstrata Merger. The arbitrage funds are planning to support the merger by converting derivatives in Xstrata to direct share ownership. Considering that both companies have been undergoing voting problems and shareholders’ disagreements regarding controversial retention package for senior Xstrata managers, participation of hedge funds in the voting process can finally resolve the problem.
The author emphasizes on the roles hedge funds may play in the process of companies’ business transactions. The merger of Glencore and Xstrata reveals the influence of hedge funds on the voting process and transaction in general. Considering that the merger will create positive outcomes for the funds, which are willing to earn high profits on their trading, hedge funds have decided to support the merger by converting derivatives into direct share ownership. Considering that mergers and acquisitions are complex transactions, in which a large number of interested parties is involved, the voting process on the deal could become a time – consuming conflict. The merger of Glencore and Xstrata demonstrates that the complexity of voting structure and shareholders’ disagreements prevent the companies from successful mergers. The hedge funds are becoming the third parties, which could remove the uncertainty from the deal and support the merger, in case it is beneficial to shareholders.
The participation of hedge funds in the voting process is significant because it removes uncertainty from the deal and represents a strategic shift for a transparent and effective in terms of time voting structure. The decision of hedge funds to convert their position in the companies has speed up the deal, which increases shareholders’ …
Posted by: Laurice Engelhard