Qatar Holding Confirms Opposition to Xstrata-Glencore Merger

on Sep 12, 2012

Qatar Holding, investment arm of the oil state’s sovereign wealth fund, last week confirmed its opposition to commodities giant Glencore’s (LON:GLEN) proposed merger with miner Xstrata (LON:XTA). An official statement released on Thursday (August 30) said that while Qatar “continues to support the principle” of the merger, based on its current terms it would “vote its entire shareholding in Xstrata” against the deal. The Gulf fund warned that it was “determined” to vote down the $31 billion (£19.6 billion) offer on its current terms of 2.8 new Glencore shares for every existing Xstrata share. Qatar Holding is pushing for the swap to be at 3.25.

Said Qatar Holding in a press statement: “QH 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.” The sovereign wealth fund, which has outlaid about $6 billion (£3.8 billion) building a 12 percent stake in the miner, has a large chunk of the votes needed to determine the outcome of a merger proposal signed off by the boards and senior management way back in February. By casting its vote against the bid on September 7, when Xstrata’s shareholders are set to make a final decision on the merger, Qatar can block the long-awaited deal and put paid to Glencore’s ambitions of creating a mining and trading behemoth, at least for now.

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!m[](/uploads/story/342/thumbs/pic1_inline.png)The likelihood of the year’s biggest takeover succeeding started waning even more when, earlier this week, Norway’s Norges Bank Investment Management (NBIM) joined forces with Qatar in opposing the merger terms. NBIM, currently the fourth largest of Xstrata’s shareholder with a 2.97 interest, has spent more than $500 million (£316 million) increasing its stake in the miner. Now the fund’s manager is replicating a similar strategy that Qatar Holding has adopted, saying that it will vote against the deal unless Glencore improves the terms of its offer.

Xstrata’s shareholders’ calls for improved terms of the proposed merger have put increasing pressure on Glencore to raise the bid or walk away. The Swiss-based commodity giant announced in February plans to merge with Xstrata, thereby creating a $90 billion (£57 billion) powerhouse in the mining and commodities sectors. Despite the positive aspects of the tie-up, Qatar early on took a stand against the adequacy of the 2.8:1 share swap. In June, Qatar said that a swap of 3.25 Glencore shares “would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata.”

Commenting on Qatar Holding’s proposal, Glencore chief executive Ivan Glasenberg stated: “I have no idea where that number comes from or how you justify that number.” Glasenberg has thus far been resolute in defending the terms of the merger as thrashed out before the deal was first put to shareholders of both companies back in February, warning last week that he could walk away from the deal if the terms were not right. “If it does not happen – no big deal,” he said, apparently playing down the merger’s significance for Glencore going forward.

Because under UK takeover rules Glencore cannot vote its 34 per cent stake at the Xstrata extraordinary general meeting on 7 September to approve the merger, the combination can be blocked by just 16.48 percent of the Xstrata voting shares. Currently the stated opposition to the deal equates with about 15 percent. For Glencore’s Glasenberg , time’s running out fora decision whether to raise his company’s effective $31 billion offer for Xstrata or oversee the disintegration of a five-year negotiation effort to create the world’s fourth-biggest mining company.


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