Qatar Reticent To Approve Glencore's Xstrata Bid – What Does That Tell Us?

The sovereign wealth fund has built up a substantial 12 percent stake in Xstrata, some of it during the period from February to September while it was opposing the original “merger of equals.”

After what was seen as a rather aggressive statement to Xstrata’s board last Friday, Glencore modified their position a little this week and confirmed on Monday that it was raising its bid to 3.05 new shares for every Xstrata share held, up from 2.8, which Qatar has maintained all along was not enough.

As Reuters wrote this week, Qatar said back in June that it saw the appropriate ratio of Glencore shares to Xstrata as 3.25. The revised offer represents a 27 percent premium to the ratio at which Glencore and Xstrata were trading last week, when the market believed the deal would collapse, and a mere 17.6 percent premium to the miner’s undisturbed price in February — paltry for a takeover premium.

Maybe not surprisingly, the Qataris have not jumped at the revised offer and may yet have reservations beyond just the price.

Glencore’s revised offer (issued at the last minute before the Xstrata board was due to vote down the original offer) reveals what many suspected all along – that this was never a merger of equals, but a takeover in all but name.

Maybe most graphically by the advice that Glencore’s Ivan Glasenberg wants Xstrata chief Mick Davis out within six months; this probably does no more than come clean on what the arrangement was always likely to be, but shareholders now have concerns about the impact on the wider management team.

If Davis was out, how many operational managers could the miner lose in the process, and for investors looking to stay in, what would that mean for the firm’s short- to medium-term future? As the FT said this week, broadly the merger still makes sense operationally and financially, but investors fear they are only now beginning to see Glencore’s true intent.

Of course, delays continue to play into Glencore’s hands, if not from a PR point of view, then certainly in terms of price.

Miners’ share prices have slid since the initial bid and further delay is likely to see further weakness, a trend that may, Glencore is no doubt hoping, encourage some shareholders to bail out now.

We have always maintained that we expected a deal to be done in one form or another. Glencore’s 34 percent shareholding in the miner is such a significant chunk of the trader’s equity and such an obvious path into the mining industry that Glencore has been into investing over recent years, that it’s hard to see them walking away from it.

They understandably see it as a good deal for Glencore; the hesitation seems to be wholly on the part of the miner’s shareholders. The revised offer is probably close enough to the Qataris’ demands to be acceptable, but whether they accept or ask for further concessions remains to be seen.

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