Commodities trader Glencore is set to all but clinch its $30-billion (U.S.) takeover of Xstrata this week, despite a potential snub for the miner's board if, as expected, investors scrap a controversial pay plan for its managers.
Shareholders in both Glencore and Xstrata, the world's fourth-largest diversified miner, will vote in Switzerland on Tuesday.
European competition regulators will decide by Thursday whether to give the green light to one of the sector's biggest ever acquisitions, or begin a longer probe.
After nine months of unexpected twists and wrangling between Xstrata and its top shareholders – not to mention years of on-off talks between the miner and trader – the deal is moving towards the finish line, a victory for Glencore's boss, top shareholder and the deal's chief cheerleader, Ivan Glasenberg.
The deal's prospects were boosted last week thanks to support offered by Xstrata's second-largest investor, Qatar, overcoming initial reticence over the terms of the deal.
Glencore, Xstrata's top shareholder, has separately offered up antitrust concessions, in the hope of securing an EU nod.
"There are hurdles, but they are not insurmountable. I would be very surprised if the deal didn't go through," analyst Chris La Femina at Jefferies said.
Shares in the two groups closed on Friday at a ratio of 2.95 – narrowing in on the ratio of 3.05 shares for every Xstrata share held being offered by Glencore in the all-share deal.
However, a decision by Qatar to abstain from voting on Xstrata's £140-million ($222-million U.S.) "golden handcuffs" plan to tie in key management has increased the chances that the proposal – which has ruffled investor feathers – will fail.
Qatar said retaining Xstrata's operational management was of "critical importance" – agreeing with the miner's board, which has emphasised the group's shift to a strategy led by organic growth.
But the Gulf state decided to abstain, given "the sensitivities concerning governance issues in the UK."
Its decision – a surprise to those who had expected Qatar to stand by its support of Xstrata managers – follows public comments by top institutional investors like Standard Life, which has already said it will vote down the pay plan, blasting a "rapacious management team and a weak board".
As Glencore does not vote, given that Qatar will abstain from voting its 12 per cent and only half of the remaining investors need to vote against, investors representing just 27 per cent of Xstrata's total shares in issue could block the pay plan.
"If (the pay deal) gets voted down wholeheartedly, it would be a big embarrassment," said a second analyst, who declined to be named.
One other hurdle Glencore hopes to overcome this week will be the European Union's antitrust authority, with a decision due by Nov. 22.
Some investors had worried a decision to prolong the probe could scupper the deal, but that is now unlikely to be the case if a decision comes after Tuesday's shareholder vote.
Brussels authorities have concentrated on zinc, and demanded concessions last month. But Glencore, which spent seven months in talks with the EU in the hope of avoiding a long probe, has already offered up a sales agreement with zinc producer Nyrstar and a mid-sized zinc plant in Germany – Nordenham.
"Glencore agreeing to give up Nyrstar and sell Nordenham … if that were the proposed remedy, it would likely be good enough. Under (the model which the Commission uses), transaction would not be anticompetitive," Mr. La Femina said.
The only major remaining hurdle Glencore faces is antitrust clearance by Chinese authorities, which do not work to fixed deadlines and might delay completion of the deal.
Analysts say the response from China, the world's largest consumer of key commodities, is harder to predict and might include behavioural remedies rather than simple asset sales.