June 17, 2024

DealBook: Glencore’s $24 Billion Deal for Xstrata Under Threat

Despite a lack of market confidence, some European deals have been announced. In February, the commodities trader Glencore proposed $41 billion takeover of the mining company Xstrata.Jack Atley/Bloomberg NewsAn Xstrata mine in Australia. In February, Glencore offered to buy the rest of the mining company.

LONDON – Glencore International’s $24 billion deal with Xstrata is under threat after Qatar Holding asked Glencore to increase its bid amid mounting opposition to executive pay arrangements.

Qatar Holding, which is one of Xstrata’s largest shareholders, said late on Tuesday that it had informed Glencore it was “seeking improved merger terms.” Glencore, the commodities trading giant based in Switzerland that already owns 34 percent of Xstrata, agreed in February to buy the rest of the company. Qatar wants Glencore to increase its offer by 16 percent.

“Qatar believes that an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share would provide a more appropriate distribution of benefits of the merger whilst properly recognizing the intrinsic stand-alone value of Xstrata,” Qatar Holding, which holds about 10 percent of Xstrata, said in a statement. Glencore had offered 2.8 of its own shares for each Xstrata share when it announced the deal earlier this year.

Qatar Holding is the latest shareholder to oppose the deal, which would create one of the world’s largest mining companies. Two Xstrata investors, Standard Life and Schroders, previously voiced criticism about Glencore’s offer price in February. Collectively, the three shareholders own about 13.5 percent of Xstrata.

Xstrata investors with only a combined 16.5 percent stake could block the merger because Glencore is not allowed to vote on the deal with its 34 percent stake in Xstrata. The retention packages, which amount to more than $260 million for 73 executives, could be blocked by just over a third of votes.

“I still think a deal will get done. The question is at what price,” said Nik Stanojevic, an analyst at Brewin Dolphin in London. “I don’t think Glencore will pay 3.25, but the chances of a bump to 3.0 have increased. But those of the deal failing have also increased.”

Glencore declined to comment on Qatar’s demand but said it was currently considering amending the retention packages for Xstrata executives that came under criticism. Some investors balked at the size of the incentives, which are not linked to any performance targets, especially that for Xstrata’s chief executive, Mick Davis.

Glencore said it received a plan from Xstrata’s board “in relation to certain amendments to the management incentive arrangements” and was “considering that proposal.”

Glencore’s shares fell 3.9 percent in London on Wednesday, and Xstrata shares were down 1.4 percent.

Article source: http://dealbook.nytimes.com/2012/06/27/glencores-deal-for-xstrata-under-threat/?partner=rss&emc=rss