Commodities trader Glencore, scrambling to save its US$30 billion offer for miner Xstrata, is expected to sweeten its bid to seal the deal, after key shareholder Qatar said it could oppose the takeover on current terms.
Qatar, which remained silent on its intentions for months as it built the second-largest stake in Xstrata, said in a surprise statement on Tuesday that it supported the principle of the deal, but demanded an improvement in terms from 2.8 new Glencore shares for every Xstrata share to 3.25.
Glencore, already Xstrata’s largest shareholder, with almost 34 percent of the firm, made its move for Xstrata in February.
Analysts said the unexpected intervention from Qatar meant a change in Glencore’s terms — combined with changes to retention packages for Xstrata bosses that have angered investors — was now virtually inevitable to rescue the deal to create an integrated mining and trading powerhouse.
However, analysts also said it was not clear if Glencore would raise its bid as high as 3.25 — at the high end of initial expectations and a level at which some say the deal could destroy value for Glencore.
“We believe a bump — probably from 2.8 to 3.0 Glencore shares per Xstrata share — may be necessary to win over [Qatar] and other Xstrata shareholders,” Jefferies analysts said in a note. “However, we do not believe Glencore will bump to a ratio of 3.25 times.”
Analysts said failure to secure the deal would not only cause a short-term drop in Xstrata shares, currently trading at a premium to the sector, but would also prove damaging for Glencore, whose bosses have long traded on their reputation as dealmakers.
It would also, though, prove potentially damaging for Qatar, which has invested more than US$4 billion to become Xstrata’s largest minority shareholder.
Several sources close to the deal said on Tuesday that Qatar’s demand for 3.25 was likely a negotiating position, part of a strategy that included Tuesday’s unexpectedly public statement.
Glencore and Xstrata have until today to alter the terms of the deal without having to change the dates of shareholder votes, set for the middle of next month.