Qatar's sovereign fund gazed into Ivan Glasenberg's eyes and made him blink. That's a huge victory over Glencore's chief executive, whose nature is never to show weakness. True, the Gulf state may not have extracted the precise terms it demanded for the commodities megamerger.
But it got a significant sweetener at the eleventh hour from buyer Glencore after using its 12-per-cent stake in Xstrata to threaten to kill the deal. Far from being "dumb money," Qatar's sovereign fund should command a new respect in financial markets.
The Gulf state took a big risk by taking such a large outspoken position, stating that an exchange ratio of 3.25 was more desirable than the 2.8 agreed by the boards of both companies. Sovereign funds are rarely active investors and seldom make public statements. Yet Qatar's vociferous opposition to the merger terms, even if its preferred price looked unjustifiable, consolidated existing resistance from institutional investors.
It's too soon to say whether the gamble really has paid off. Glencore is now offering an exchange ratio of 3.05, a 9-per-cent bump on the last offer. But Glencore's new proposal isn't identical in all other respects. Crucially, it involves Mr. Glasenberg being chief executive of the combined group, instead of Xstrata's current CEO Mick Davis. It's not clear that Qatar won't now demand an even bigger premium after taking into account the changed governance.
Qatar has always maintained that it seeks long-term value. Its bet on Xstrata has been painful as the shares have sunk, but the investment is probably now almost in the money. The Gulf fund's average purchase price is around 1,074 pence ($16.79) per share, according to estimates by Liberum Capital. Xstrata shares are trading at 1,040 pence after rising 6 per cent following the revelation of Glencore's new terms.
The real value to Qatar has been demonstrating to the world that it isn't just another pot of "easy" Gulf money, as it is often said to be. Doubtless Qatar will continue to spend lavishly on trophy assets. But it's shown trading whiz Mr. Glasenberg that it knows a thing or two about being a price-maker, rather than a price-taker.