Glencore International Plc (GLEN) said it’s ready to walk away from a $31 billion deal to buy Xstrata Plc, the year’s largest takeover, rather than give in to demands from Qatar’s sovereign wealth fund and overpay for the mine operator.
“If they vote against the deal, they will block the deal,” Chief Executive Officer Ivan Glasenberg said in a phone interview. “From my point of view, from Glencore’s point of view so be it. It’s not the end of the world. We will move on.”
Glencore’s planned takeover of Xstrata, scheduled for an investor vote on Sept. 7, has a 60 percent chance of being rejected, UBS AG said yesterday. Glasenberg, 55, has repeatedly rebuffed calls to raise the bid even as Qatar Holding LLC has increased its stake to 12 percent and argued for a sweetened offer. He declined today to say that the current bid was final.
“Glasenberg is playing a game of high-stakes poker,” Rupert Nathan, head of U.K. fund management at Fat Prophets, said in an interview with Mark Barton on Bloomberg Television’s “Countdown.” “Given the way that the holdings are stacked, they either sweeten the offer or walk away.”
Glencore rose 1.8 percent to close at 360 pence in London trading. Xstrata rose 2.1 percent to 926.1 pence, resulting in a ratio of 2.57 Glencore shares for each of Xstrata’s. Earlier today, the discount to the offer of 2.8 shares was the widest since it was announced on Feb. 7, signaling a heightened risk of the bid failing, according to data compiled by Bloomberg.
“I don’t quite understand the Qataris’ reason and logic because the Qataris have not been a big shareholder of Xstrata previously,” Glasenberg said. “We can always look and if the Qataris believe they got it right, then let’s talk in a year or two years’ time, and we’ll see who got it right.”
The risk of Glencore’s takeover failing has increased as Qatar’s sovereign wealth fund continues to raise its holding in Zug, Switzerland-based Xstrata. The fund has spent about $5 billion building its stake from about 3 percent in February. Qatar, advised by Lazard Ltd. (LAZ), pressed for improved terms in June, saying a bid of 3.25 shares would be “more appropriate.”
A London-based spokeswoman for Qatar Holding declined to comment today. A spokeswoman for Xstrata also wouldn’t comment.
“I’m not going to upset my shareholders and overpay,” Glasenberg said. “We cannot say what our final offer is but you’ve heard my discussion and draw your own conclusions.”
Other Xstrata shareholders including Knight Vinke Asset Management LLC and Standard Life Plc (SL/) have also called for a sweetened offer. Glencore may have to raise its bid to 3 shares to strike a deal, Jefferies Group Inc. said today.
“It is not clear to us whether Glencore is talking down the market’s expectations to soften Xstrata (XTA)’s oppositional shareholders, ultimately surprising to the upside with a bump to 3 times,” analysts at Jefferies said in a report. “Or whether Glencore is just being completely transparent about its true intentions and does not plan to bump at all.”
Glencore, the world’s largest publicly traded commodities supplier, said today that first-half profit dropped 26 percent to $1.8 billion, beating analysts’ estimates, after prices for commodities fell. It declared a dividend of 5.4 cents a share.
It owns mines, plants and warehouses, and ships raw materials including coal, oil, wheat and nickel. The Baar, Switzerland-based company generates income from an industrial production unit, its trading operation and a 34 percent holding in Xstrata, the biggest exporter of power-station coal.
This month, Xstrata reported a 33 percent decline in first- half profit to $1.94 billion, blaming a “cyclical downturn” in commodity prices. The Thompson Reuters/Jefferies CRB Index of raw materials averaged 13 percent lower in the period than a year earlier as waning economic growth in China sapped demand.
The combination of Glencore and Xstrata, which would create the world’s fourth-biggest mining company, can be blocked by just 16.48 percent of Xstrata holders under U.K. takeover rules because Glencore can’t vote its stake. Glasenberg insisted today there’s no rush to complete the transaction.
“We’ve looked to do this deal for the last five years and if we’ve got to wait longer to look at it again, it’s not a major issue,” he told reporters on a call. “It’s not the only deal that can be done. It’s something that can be looked at in the future.”
Xstrata has also said its strength as a company isn’t dependent on completing the deal.
Xstrata can still generate “significant value,” CEO Mick Davis said on an Aug. 7 call with analysts. “The inherent capacity of Xstrata to generate value as a standalone company remains very, very powerful indeed,” even if the business model of the combined entity is “more powerful,” he said. Davis would be CEO of the combined group.
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