Mick Davis: Xstrata
19 April 2004
At 39, Benny Levene has run a marathon, made partner in one of South Africa’s leading firms, and as the head of legal at Xstrata, has structured some of the most radical transactions the mining industry has seen.
In the flesh, the South African is almost impossibly tanned and relaxed, and his slow, laconic manner seems more suited to the surfboard than the boardroom.
Levene joined Xstrata in 1998, when the company was a little-known South African alloy miner with a market capitalisation of just £500m. Six years on, the Zug (Switzerland)-based Xstrata has become one of the world’s major diversified mining companies, with a market capitalisation of around £4.5bn.
The intervening period has seen a series of groundbreaking transactions characterised by commercial ambition and legal ingenuity. Xstrata’s trail of acquisitions confirms that, in many respects, the company’s tenfold growth has been thanks to the innovative thinking of its legal advisers, both internal and external.
In 2001, its then owner, Glencore International, hired former Billiton finance director Mick Davis as Xstrata’s chief executive. A year later came its famously successful London listing followed by the acquisition of Glencore’s Australian and South African coal interests.
Xstrata’s 2002 listing on the London Stock Exchange was the first cross-border merger out of Switzerland under Swiss merger laws, where the absorbed company dissolved without liquidation. The deal was so novel that Levene still receives queries from university students.
Today, the group operates in six major international commodity markets – copper, coking coal, thermal coal, ferrochrome, vanadium and zinc. Its operations span four continents and six countries, comprising Australia, South Africa, Spain, Germany, Argentina and the UK.
Less than a year after its float, Xstrata acquired Australian copper, zinc and coal producer MIM, in a deal that doubled Xstrata’s size. It was the first time Australia had witnessed an opposed scheme of arrangement.
The company had to make a rights offer to fund the acquisition, but the offer was conditional on the scheme of arrangement being successful, so Xstrata issued convertible unsecured loan stock.
Xstrata’s traditional corporate adviser, Freshfields Bruckhaus Deringer, was drafted in, while it requested that Linklaters should act for the banks. Mallesons Stephen Jaques advised on Australian law.
From Xstrata’s point of view, the MIM acquisition represented the deal of a lifetime, with the Anglo-Swiss giant doubling the value of its investment in a year. However, at the time, Xstrata faced fierce opposition from MIM director Vince Gauci, who countered the takeover on the grounds of price and national interest. And all the while, the company battled against a deeply suspicious Australian media. Levene says: “Every single acquisition has been extremely challenging.”
In addition to M&A, Levene says that South Africa’s Minerals Act has provided some of the toughest challenges for Xstrata’s legal team and the mining industry generally. Its fundaments – black ownership of the country’s enterprises and the promotion of black people within organisations – have ensured rapid and radical change across South Africa’s industries and professions. Of the mining companies, Xstrata was among the first to conclude a black empowerment deal, and Levene adds: “We’re ahead of the game on the promotion of black people as well.”
This year, chief executive Mick Davis announced Xstrata’s novel black empowerment ‘share venture’ deal in which its South African ferrochrome business has been combined with that of SA Chrome.
Levene describes it as “a good transaction in which everybody brings something to the party. Good people, good operation, good all-round transaction. We welcome that”.
Levene’s own background informs his recruitment policy and, in many respects, the structure of Xstrata’s legal team. After completing his LLM in, of all things, landlord and tenant law, he trained as an M&A lawyer with South African corporate powerhouse Werksmans. It provided the sort of generalist corporate experience that Levene seeks in his own staff. “Broad commercial experience is the best qualification for internal legal counsel, irrespective of the industry,” he says. “I was fortunate in that in South Africa, there wasn’t the specialisation that there is in the UK. I did floats, finance agreements, you name it. I was the lawyer to the South African Rugby Football [Association] for its first sponsorship deal with News Corporation,” he adds. His mining experience was earned when he acted as outside counsel to Glencore.
So though BHP Billiton’s head of legal John Fast has centralised his legal team and imposed a law firm billing culture, Levene stands by his ‘lean team’ approach of just 10 lawyers, organised along commodity lines. Lawyers report to the chief executive of their business unit.
“I came from a law firm and I saw how companies operated alongside in-house counsel,” says Levene. “I came to the conclusion that you can’t build a whole in-house team with specialist practitioners of the sort you’d see in private practice – the guy in a firm exposed to different clients and different deals. You can’t match that.”
The lean approach to staffing the legal team is reflective of Xstrata’s general management style. For a company with around 20,000 staff, it has a tiny head office staff of just 27. The efficiency drive is also helped by the company keeping its tax residence in Zug which levies very low taxes on foreign income.
Eschewing the seemingly irresistible move towards law firm panels, Levene insists that Xstrata will never introduce a legal panel. “We have a horses for courses approach, we’re not joined at the hip to anyone,” he says. Nevertheless, certain firms have basked in Xstrata’s acquisitive limelight, including Freshfields Bruckhaus Deringer, Linklaters, Mallesons Stephen Jaques, Uría & Menéndez and Werksmans.
Perhaps it is because of its relative youth that Xstrata has remained largely untarnished by the negative publicity that has tainted other mining companies, particularly with operations in South Africa. It is rarely the subject of law suits in an industry where litigation is a regular part of life. Levene says that the legal team’s high degree of contractual accuracy and Xstrata’s high environmental and health and safety standards are all to thank. “Criticism has rarely been aimed at us and where it has, we’ve made every effort to address it.
We really have good people and we have a transparent mode of operation,” he says.
For now, Levene says that he has no plans to return to South Africa permanently, contenting himself with regular visits. In the years since he left, he has seen many positive changes within South Africa.
“The country is a surprise for a lot of foreigners. The infrastructure is great and the professionals are extremely high quality,” he says. But while he remains true to the twin sporting passions of his homeland – cricket and rugby – Levene has happily thrown himself into the Swiss lifestyle, fondue and all, and is now a keen skier and canoeist.
For a mild adrenaline junkie, Levene has chosen his in-house role well. After a period of ferocious and groundbreaking acquisition, Levene says: “It’s been an exciting time to be here.”
Head of legal
|Reporting to||Chief executive officer Mick Davis|
|Main law firms||Freshfields Bruckhaus Deringer and Linklaters (UK); Mallesons Stephen Jaques (Australia); Werksmans (South Africa); Uría & Menéndez (Spain); Fortunati & Lucero and Marval O’Farrell & Mairal (Argentina)|