Glencore/Xstrata merger under threat

Four months after the $65bn Glencore and Xstrata merger was first agreed, Qatar's sovereign wealth fund has said it is unhappy with the deal.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Qatar Holdings is Xstrata’s second biggest shareholder, retaining a 10.4% stake. What the Qataris say, goes. And they, apparently, are no longer happy with the deal, announcing today that despite the ‘merit in a combination of the two companies’, it is ‘seeking improved merger terms.

The Qatari’s have picked their moment perfectly. The merger is in the advanced stages - Glencore chief executive Ivan Glasenberg has been working on the deal for three years. This leaves the commodities giant very little choice but to cede to the sovereign fund’s terms.

This is a pretty cynical move, given Qatar’s support to date in the face of widespread opposition from the likes of Xstrata investors Standard Life, Schroders and Fidelity. If the Qataris now withdraw their support, that means that around a quarter of the mining company’s investors are opposed to the deal, which needs 75% approval minimum to go ahead. Glencore owns a 34% stake, but cannot vote due to obvious bias. So, Qatar is holding all the cards.

Glasenberg was last night desperately attempting to sweeten the terms of the deal in the sovereign fund’s favour. The merger, as it stands, offers Xstata 2.8 of Glencore shares for each one of the theirs. The new proposition put forward by the Qataris, however, suggests that ‘an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share’ would provide a ‘more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata’.

Qatar is after its full pound of Glencore flesh. And this isn’t the only spoke in the merger’s wheel. Discord has been raging for months over the proposed remuneration deal for Xstrata’s CEO Mick Davis, who stands to make £29m over three years for staying with the merged company – against zero performance criteria, we might add. The whole retention package for Davis and a handful of senior managers adds up to an eye-watering £173m in total.

Between shareholder discord and the newfound Qatari avarice, Glasenberg’s going to have to steel himself for a hard few days ahead. He doesn’t have a lot of time to negotiate: the meeting to decide the vote is just over two weeks away (Glencore’s on July 11 and Xstrata’s the day after). But the problem is that in giving another inch, Glencore could be forced to give a mile. MT wouldn’t want to be in Glasenberg’s shoes, that’s for sure.

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