Glencore M&A Firepower Shrinks After Probe Spurs Share Buyback

(Bloomberg) -- Investors had long waited to see where Glencore Plc’s serial dealmaker Ivan Glasenberg would turn his firepower next. The answer was revealed on Thursday: Glencore’s own battered shares.

The company will spend up to $1 billion buying back its own shares before the end of the year. The announcement came two days after a plunge in Glencore shares, sparked by news that the U.S. is investigating the company’s dealings in Africa and South America. Analysts said the buyback plan made major acquisitions by Glencore less likely in the near future.

The buyback will "reinforce the view that Glencore is likely to focus on investor returns" over M&A, according to analysts at Goldman Sachs Group Inc. Credit Suisse Group AG analysts highlighted that the buyback would bring the company’s net debt level closer to a self-imposed ceiling of $16 billion, "which should diminish the likelihood of any major M&A activity” in the next six months.

While Glencore rebounded 3 percent to 329.05 pence on Thursday, the stock is still down almost 20 percent this year.

To be sure, it’s impossible to rule out M&A from Glencore, one of the most active dealmakers in the natural resources industry. In February, Glasenberg highlighted the company’s appetite for acquisitions and substantial cash flow after the rally in commodity prices.

Still, the U.S. investigation relating to possible corruption and money laundering and the new buyback strategy are likely to persuade investors that acquisitions aren’t the focus for Glencore’s management.

That may be unwelcome news for shareholders of Bunge Ltd., which has been seen as a likely target after Glencore made an informal approach last year. Bunge shares dropped to a six-month low this week.

To contact the reporter on this story: Jack Farchy in London at jfarchy@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, Lynn Thomasson, Alex Devine

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