Qatar May Study Lower Demands on Xstrata Deal, Liberum Says

Qatar Holding LLC may study softening its demand for a higher offer for its shares in Xstrata Plc (XTA) from Glencore International Plc (GLEN) as the fund’s paper loss on the proposed takeover has evaporated, said Liberum Capital Ltd.

The Qatari sovereign wealth fund had an unrealized loss of $1.4 billion on its Xstrata investment when it sought a higher bid for the mining company from Glencore on June 26, Liberum analysts Richard Knights and Ash Lazenby said today in a note. Glencore’s bid of 2.8 shares would see the fund in the black based on current prices, while an offer of 2.9 would give it a profit of $221 million, Liberum said.

Qatar surprised analysts and investors in June by calling for a higher offer, derailing the world’s biggest takeover this year. The fund is the second-biggest shareholder in Xstrata with a 12 percent stake and last week said it would oppose the bid when investors in the biggest thermal coal exporter vote on the offer tomorrow. UBS AG sees a 20 percent chance of the deal winning investor approval, it said Sept. 4.

“The drastically improved economics might tempt Qatar Holding to consider a lower offer if it were tabled by Glencore,” the analysts wrote. The takeover “now represents a materially more profitable proposition for Qatar Holding than it did six weeks ago when it requested a ratio of 3.25.”

‘More Appropriate’

The fund needed 3.7 Glencore shares for each one it held in Xstrata at June 26 to break even on the investment, Liberum said. In its first public statement on the deal that day, Qatar Holding said a figure of 3.25 shares was “more appropriate.”

Since then Glencore’s shares have risen in London trading, while Qatar has added to its Xstrata stake at lower prices, improving the economics of the deal for the fund. Glencore shares have advanced by 29 percent since June 26.

The average purchase price for Qatar’s stake was 1,076 pence, Liberum said, adding that it still sees a 70 percent chance the deal will collapse. The fund has spent $5 billion buying Xstrata shares since the bid was announced in February.

Glencore Chief Executive Officer Ivan Glasenberg has rejected calls for an increase, saying he won’t overpay.

“I don’t quite understand the Qataris’ reason and logic because the Qataris have not been a big shareholder of Xstrata previously,” he said in an Aug. 21 interview. “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.”

‘Strong Future’

Glencore advanced by 1.4 percent to 395 pence by 1:19 p.m. in London, valuing its proposal at 1,106 pence, while Xstrata increased 1.6 percent to 949.8 pence.

Qatar Holding said Aug. 30 that “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 fund didn’t repeat its view that a ratio of 3.25 was more appropriate in its statement that day. Qatar Holding said it “believes that Xstrata has a strong future, whether in combination with Glencore on acceptable terms or as a stand- alone entity, and that its shares represent an attractive long- term investment.”

A London-based external spokesman for the Qatari fund couldn’t immediately be reached for comment.

Qatar’s omission of its earlier request for an offer at 3.25 “is a signal the sovereign wealth fund is willing to negotiate on a constructive basis,” BTIG Ltd. wrote in a note to clients today. “We are equally encouraged by Glasenberg’s recent rhetoric and absence of a ‘no increase statement’ and think Glencore has realized that Qatar on its own can already vote down the scheme.”

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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