Qatar pressures Glencore to sweeten Xstrata bid
Doha, June 27, 2012
Qatar, Xstrata's second largest shareholder, threw a huge roadblock in the way of Glencore's $30 billion takeover of the miner with a surprise demand on Tuesday for better terms.
The 11th hour rebuff will make it very difficult for Glencore and Xstrata to push the merger through on current terms, several sources close to the deal said, leaving only until Thursday evening for Glencore to sweeten the deal or be forced to delay shareholder meetings scheduled for mid-July.
Qatar, which has built up its stake of around 11 percent in Xstrata since February, and could be a kingmaker for the takeover, said Glencore should pay 3.25 of its shares per Xstrata share, rather than the 2.8 on offer.
Qatar's demand added to pressure from shareholders angered by the hefty executive retention payments tied to the deal that do not have any performance hurdles.
'There's pressure on Glencore to look at slightly more equitable terms and address some of these very, very large retention payments,' said Ric Ronge, a portfolio manager at Pengana Capital, which owns shares in Xstrata.
The Qatari sovereign wealth fund's role is vital as Glencore's bid needs approval from 75 per cent of shareholders in Xstrata, excluding its own 34 per cent holding in the mining company.
That means that if investors owning 16.5 per cent of Xstrata's total shareholding voted against the deal, it would fail. 'Whilst it (Qatar Holding) sees merit in a combination of the two companies, it is seeking improved merger terms,' it said in a statement emailed late on Tuesday.
It said the new proposed share ratio 'would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic standalone value of Xstrata'.
Xstrata and Glencore both declined to comment. Sources working on the deal, however, told Reuters they were taken aback by the last minute request by Qatar.
Xstrata shares closed on Tuesday at 785.8 pence while Glencore was at 302.7, implying a share ratio of 2.6 times. 'There seems to be coordination between major Xstrata shareholders on the proposed exchange offer,' said a banker close to the deal.
'We believe that the Qataris, among other shareholders, will vote against the existing deal if the terms don't change to give them a better valuation.'
Qatar Holding, a unit of Qatar Investment Authority, is now being advised by Lazard, having previously not retained bankers on the deal.
Analysts at Jefferies & Co predicted Glencore would bow to shareholders rather than let the deal fall apart, but would not increase the merger ratio all the way to 3.25.
'A bump from Glencore and a revision to the management retention awards should be the logical next steps. We continue to expect this proposed merger to happen,' Jefferies analysts said in a note.
It is the first time Qatar's sovereign wealth fund has taken such an activist role in one of its holdings. QIA owns stakes in several companies including German engineering group Siemens, oil major Shell and British bank Barclays.-Reuters