The blockbuster merger between Swiss commodity giants Glencore International PLC and Xstrata PLC is in jeopardy as key shareholder Qatar threatens to block the union in a vote on Friday in search for better terms.
Qatar Holding said last week it opposed the terms of the merger which if completed would create a commodities behemoth worth around €69.8-billion euros ($87.3-billion U.S.) according to the current market capitalization.
The investment fund, which is wholly owned by Qatari’s sovereign wealth fund and is Xstrata’s second-largest shareholder with a 12-per-cent stake, stressed in a statement that “although it continues to support the principle” of the merger, it has determined that it will not support the current terms.
As they stand, the merger terms offer 2.8 new Glencore shares for every one existing Xstrata share, but Qatar Holding has since June demanded Glencore cough up 3.25 shares for each Xstrata existing share, a 16-per-cent boost.
Glencore has flatly refused the increase, but other shareholders have rallied around Qatar’s new demands on the deal.
According to a Financial Times report, Norges Bank Investment Management, which manages Norway’s oil-backed sovereign wealth fund and has hiked its holdings in Xstrata to 3 per cent, had “privately indicated” its opposition to the current terms of the Glencore-Xstrata merger.
Glencore, which owns nearly 34 per cent of its coveted compatriot, is not authorized to vote during Friday’s general assembly in the small city of Zoug in central Switzerland.
The firm has so far staunchly stood its ground amid the mounting pressure from Xstrata’s shareholders and has even begun bracing for the possible failure of the deal.
Glencore chief, Ivan Glasenberg of South Africa, told Dow Jones Newswires last month that the merger was “not a must-do deal.”
“We cannot overpay on this asset,” he said, adding: “If it doesn’t happen, it’s not the end of the world, we move forward.”
Mr. Glasenberg also insisted he had not received any persuasive arguments for why his company’s offer needed to be raised.
“No one has given me any substantive figures” showing that exchanging 3.25 Glencore shares for each of Xstrata’s was a reasonable deal, he said.
The outcome of Friday’s vote is basically already clear, experts say.
“Glencore’s takeover probably will fail unless Mr. Glasenberg raises the offer in time,” the CIMB investment bank said in a note.
“We think there is a good chance that Glencore could maintain its 2.8 bid going into this Friday’s vote (likely) resulting in a vote down of existing terms,” RBC Capital Markets agreed.
Xstrata’s and Glencore’s general assemblies were already postponed once at the beginning of July due to Qatar Holding’s demand for better merger terms, as well as grumbling over bonuses being handed out to 73 Xstrata top executives, including chief executive Mick Davis.
If the merger does fall through, it will not be the end of the world for either of the companies though, analysts say.
In the first half of the year, Glencore posted a slightly lower net profit at $2.3-billion, but said it remained in a solid position to grow its revenue.
Xstrata meanwhile saw its net profit slump 33 per cent in the first half of the year to $1.9-billion, but is benefiting from good organic growth, according to RBC.
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