Qatar Holding, the second-largest investor in Xstrata, will vote against Glencore's $31-billion (U.S.) offer for the miner unless it improves the terms, making it virtually impossible for the current deal to go ahead.
Qatar said on Thursday that it planned to vote against the bid at next week's shareholder meeting, in its first statement since voicing opposition to one of the mining sector's largest ever deals in June.
The investment arm of the Gulf state's sovereign wealth fund has become an unexpected kingmaker in the Xstrata deal after spending more than €3-billion pounds ($4.8-billion) to raise its stake to 12.3 per cent. That is almost enough to single-handedly vote down the bid from commodities trader Glencore, Xstrata's biggest shareholder which is not allowed to vote on the deal.
However, Qatar left the door open for Glencore to make an 11th-hour improvement to its offer by leaving out of the statement its previous demand for at least 3.25 new shares for every Xstrata share held.
"The deal at 2.8 is dead in the water," one source familiar with the transaction said earlier on Thursday. "But the Qatari wording has been carefully chosen – they like the merger idea."
Qatar's statement said: "Although it continues to support the principle of a combination of Glencore with Xstrata, (Qatar) has determined that it will not support the proposed merger terms of 2.8 new Glencore shares for every one existing Xstrata share."
A second source involved in the transaction said that Qatar's statement could make it easier for Glencore to improve its offer because it removed uncertainty over how the shareholder will vote.
Qatar surprised all sides in June when it made a highly unusual public statement saying it could not support Glencore's offer. Instead of the proposed 2.8 new Glencore shares for every Xstrata share held, it asked for at least 3.25.
But the notoriously private investor has since been silent, engaging in what analysts and advisers call a "game of chicken" with Glencore – both sides sticking to their positions and neither blinking.
Glencore said last week it was sticking to its guns, warning the deal was not a "must do." Glencore effectively has until the morning of Sept. 7 to change its bid.
With no signs of a rapprochement between the two sides, however, the tie-up Glencore hoped would create a mining and trading powerhouse is looking unlikely for now.
Glencore and Qatar have not met since their initial talks after the June announcement and have no current plans to get together before next week's shareholder meeting, sources familiar with the deal said on Thursday.
Qatar indicated that it may continue to add to its Xstrata holding, having bought shares regularly since February and virtually every day this month. Its statement said Xstrata has a strong future, whether in combination with Glencore on acceptable terms or as a stand-alone entity, and its shares represent an attractive long-term investment.
Glencore declined to comment.
Norway's sovereign wealth fund also added to its Xstrata holding earlier on Thursday, which now stands at 3 per cent.