The UK's equity market showed the first sign of returning health last month as the biggest initial public offering (IPO) launched in London since July 2001. Things are looking so good that a technology company is planning to list in June – the first technology IPO for over a year.
Swiss company Xstrata offered $2 billion of shares on March 25, while Detica, a UK information technology services company, plans a £16 million ($23 million) IPO in June. The Xstrata deal is a cleverly constructed four-part transaction.
"It's a nice deal, with all four parts inter-conditional," commented Charlie Jacobs of Linklaters, the firm advising JP Morgan, sponsor and financial adviser to Xstrata.
The first part of the deal is Xstrata's $2.5 billion acquisition of Glencore's Australian and South African coal assets. Xstrata did not have the money to pay for the assets so is funding the acquisition by taking debt out and issuing new equity.
It is much easier to raise the equity from a London-listed company on the London Stock Exchange (LSE) than a Swiss mining company, and so Xstrata needed to be moved to the LSE as a UK incorporated company.
Xstrata (the listed company in Switzerland) is merging with a UK incorporated company and the surviving company is the UK plc.
"When the clock chimes eight o'clock in the morning," said Jacobs, "the first thing that happens is the merger, the second thing that happens is that the acquisition [of Glencore's assets] is complete, and the third thing is that the funds flow around the group through the debt and equity."
The $2 billion shares being issued comprises $1.2 billion of new money raised and $800 million worth of shares being issued to Glencore as part of the payment for the coal assets. The IPO was seven times over-subscribed, causing Xstrata to restructure its proposed $2 billion debt facilities. It will now have a single $1.4 billion facility.
Freshfields Bruckhaus Deringer is advising Xstrata. Australian firm Mallesons Stephen Jacques, South Africa's Werkmanns and Swiss firm Bär & Karrer are also involved.