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The combatants in the imperiled tie-up between Glencore International GLEN.LN +1.23%PLC and Xstrata PLC could still salvage the $34 billion deal before a Friday shareholder vote, people close to the companies say, though recent attempts to break an impasse over price have been unsuccessful.
Passage of the deal rests in large part on the approval of one of Anglo-Swiss miner Xstrata’s largest shareholders, Qatar Holding LLC. Although both Glencore and Qatar Holding say they want to do the transaction, Glencore says it won’t overpay, while Qatar Holding says the current terms are lopsided in Glencore’s favor.
Xstrata shareholders vote Friday morning in Zug, Switzerland, to determine whether to combine with the world’s biggest commodities trader, which would create a company with a combined market capitalization of roughly $72 billion. The price squabble separating Glencore and Qatar Holding, Xstrata’s two biggest shareholders, could doom the deal to the same fate as the aborted merger of mining giants BHP Billiton BLT.LN +1.24%and Rio Tinto RIO.LN +1.95%four years ago.
Qatar Holding, a unit of the Middle Eastern country’s sovereign-wealth fund, leads a group of shareholders with a blocking stake. It has said it will vote against the deal at the current proposed terms, 2.8 Glencore shares for each Xstrata share. Qatar at one point indicated that 3.25 is a fairer price.
Glencore CEO Ivan Glasenberg has suggested that he won’t offer such a “bump” and that the slide in commodity prices makes his offer already generous. The transaction, he said last month, was “not a must-do deal.”
Glencore shares closed at £3.90 ($6.19) in London Wednesday; Xstrata settled at £9.35 in London.
UBS AG now estimates the chance of a successful completion of the deal at 20%, while Liberum Capital pegs it at around 30%. Investors also seem to be betting that the deal will fall apart. The price ratio of one Xstrata share to one Glencore share currently stands at 2.4, well below the agreed 2.8 ratio.
But there is an X factor: Mr. Glasenberg has long coveted Xstrata, which mines copper, coal, nickel and other essential minerals from Argentina to Australia. And he has powerful incentives to get the deal done now. Indeed, Switzerland-based Glencore’s decision to abandon its secretive partnership structure and go public last year was largely meant to pave the way for the deal. Should the merger fall apart, many industry players expect Qatar to keep building its stake, which currently stands at 12%. That could make a full takeover by Glencore at a later date even harder to pull off. Glencore currently holds about a one-third stake in Xstrata.
Another incentive for Glencore is that a completion would position it to get even bigger, thanks to the steady cash flow generated by Xstrata’s mining sales.
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