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 A Reuters analysis of accounts for Swiss-based Trafigura shows it
has spent around $2 billion on share buybacks over the past three
years, and the unlisted company says it could spend another $1.5
billion until 2017 if profits allow.
The scale of the exercise, in a company where shareholders' equity
only just tipped $5 billion at the end of September, indicates a
major rebalancing of ownership and confirms executives have no wish
to follow rival Glencore <GLEN.L> into a public listing of its
stock, which would be an alternative route for founder shareholders
to cash out.
"We undertake share buybacks for two reasons. First, to pay
departing employee shareholders and, second, to rebalance
shareholdings of current employees to avoid undesirable
concentrations of ownership and to align shareholder return with
contribution," a Trafigura spokesman said.
All but one of the original founders from 1993 have retired from
executive positions. It is not clear how much each of the retired
men used to control, but no shareholder holds more than 5 percent in
Trafigura's 2013 accounts, except for Claude Dauphin, a founder who
remains chairman and chief executive and owns "less than 20
percent".
"Dauphin is very much in control and remains a very strong revenue
generator and deal maker," a senior executive at a rival trading
house said.
The rest of the shares are held by 700 senior managers, past or
present, which would include any of the other living founders — Eric
de Turckheim, Graham Sharp, Daniel Posen and Mark Crandall — still
owning shares.
GOLDMAN SACHS MODEL
Buybacks went up from $357 million in 2011, or roughly 10 percent of
shareholders' equity at the time, to $787 million in 2012, or over
20 percent of equity. Last year, the buybacks amounted to as much as
$855 million, or 17 percent of equity of about $5 billion.
Together with planned buybacks of $1.515 billion until 2017,
Trafigura will have changed more than two thirds of its ownership
over six or seven years, assuming shareholdings are redeemed at
balance sheet value.
The company, whose board is filled with relatively young managers,
doesn't disclose how shares are redistributed after buybacks or on
what valuation basis newcomers buy in.
"It is a once-in-a-generation change," a source at a rival trader
said.
The younger generation in charge now includes chief operational
officer Mike Wainwright, head of mining and market risk Jeremy Weir,
head of non-ferrous commodities Simon Collins, head of oil trading
Jose Larocca, head of derivative trading Duncan Letchford and chief
financial officer Pierre Lorinet.
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A record $10 billion initial public share offering by rival Glencore
in 2011 produced a string of billionaires and created an expectation
in the market that more trading houses would follow suit.
Glencore's subsequent merger with Xstrata created a mining and
trading giant with a capitalization of $68 billion, nearly 14 times
Trafigura's book value, which could be multiplied several times for
an IPO valuation.
However, no major trading house has conducted an IPO since Glencore,
preferring a private status that allows them to disclose as little
as possible and avoid giving competitors an insight into their
trading strategy.
There is also an argument from fairness for maintaining a private
company, in that an IPO can give an unearned bonus to those who have
bought into a company below market value.
"It is very much like the old Goldman Sachs model," an industry
source said of the buyback philosophy.
Wall Street bank Goldman was a private partnership throughout most
of last century until it went public in 1999.
Goldman's partners had opposed an IPO several times, with some
senior leaders arguing that partners who were let in at book value
should leave at book value, too, rather than be allowed to cash out
at an IPO price that reflected the work of previous generations.
Whatever its specific reasons, Trafigura's hefty buybacks reinforce
its inclination to remain a private company owned by its employees.
"We believe this is the best ownership model for our core trading
business," Dauphin said in the company's financial statements last
month.
(Editing by Will Waterman)
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