Glencore (GLEN) International Plc’s prospects of completing its $31 billion takeover of Xstrata Plc (XTA), the world’s biggest this year, weakened further after Qatar Holdings LLC said it will vote against the offer next week.
“Although it continues to support the principle of a combination of Glencore with Xstrata, it has determined that it will not support the proposed merger terms,” the investment arm of Qatar’s sovereign wealth fund said today in a statement. Xstrata has a strong future and is an attractive long-term holding, the fund said.
Qatar Holding, which owns 12 percent of the Swiss mining company, has narrowed Glencore’s options to complete the takeover. Just 16.48 percent of shareholders can block it and other investors also oppose the terms. Glencore Chief Executive Officer Ivan Glasenberg has rebuffed calls to raise his offer and said Aug. 21 a Qatar “no” vote would sink the current bid.
“It’s difficult for Glencore to meet terms that would be acceptable to Xstrata shareholders,” John Meyer, an analyst at Fairfax IS Plc in London, said today. “I don’t know if that kills the deal, but it certainly makes it much more tricky.”
Xstrata declined 2 percent to 905.4 pence at 2:32 p.m. in London trading. Baar, Switzerland-based Glencore fell 2.7 percent to 358.8 pence at the same time.
A spokesman for Glencore, the world’s largest publicly traded commodities supplier, declined to comment, as did a spokeswoman for Zug, Switzerland-based Xstrata. Investors are due to vote Sept. 7 on the bid from Glencore, which already holds a 34 percent stake in the world’s largest exporter of coal burned by power stations. Xstrata has agreed to the offer terms.
At current prices, Xstrata is trading at the equivalent of 2.52 Glencore shares, a discount of 10 percent to the offer of 2.8 shares. The ratio fell to as low as 2.45 on Aug. 28, the widest discount to the offer since it was announced on Feb. 7, signaling a heightened risk of the bid failing, data compiled by Bloomberg show.
The combination of Glencore and Xstrata would create the world’s fourth-biggest mining company. The transaction can be blocked by just 16.48 percent of Xstrata holders under U.K. takeover rules because Glencore can’t vote its stake.
Qatar has continued to build its holding in Xstrata since its first statement of June 26 calling for an improved bid. The fund has spent about $5 billion bolstering its stake from about 3 percent in February. An increased offer of 3.25 Glencore shares would be “more appropriate,” Qatar said in June. Today’s statement didn’t repeat that number.
“If they vote against the deal, they will block the deal,” Glasenberg said of Qatar Holding in an Aug. 21 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.”
The cost of insuring debt sold by Glencore and Xstrata rose by the most among 125 investment-grade companies in the Markit iTraxx Europe Index. Credit-default swaps on Glencore jumped 29 basis points to 337 and Xstrata rose 24 basis points to 205.
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 Aug. 21.
The chances of the deal’s success are slipping below 30 percent, Liberum Capital Ltd. said yesterday in a note. Opposition to the deal has grown to about 15 percent after the Financial Times reported Norway’s sovereign wealth fund, with 3 percent of Xstrata, is joining with Qatar in planning to block the Glencore bid, Liberum said.
Qatar said today’s announcement was made “in the interests of market transparency” and to preserve its ability to continue to buy Xstrata shares.
Xstrata said today it expects Glencore won’t make a required regulatory filing to the European Commission until next month and that review process with the commission continues. That compares with an Aug. 8 statement which said talks with the commission were at an “advanced stage” and a formal filing was expected in August, allowing the deal to be completed during the fourth quarter of 2012.
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