Glencore and rival shareholder Qatar could be granted weeks more to hammer out a deal over the terms of the commodity trader’s planned takeover of miner Xstrata, easing speculation that the current deadlock could put the deal on ice.
Xstrata will this week set a fresh date for investors to vote on Glencore’s proposed $ 26bn takeover offer - probably in September to allow for the European summer break, the Olympics in London and half-year results from both the miner and the trader, sources familiar with the matter said.
Xstrata shareholders had been due to meet on July 12, but the miner was forced to delay the vote late last month after adjusting retention packages for its executives in response to shareholder outcry over mostly cash deals.
The new vote date, likely to be at least 24 days after supplementary documents are published this week, is still moveable. But sources familiar with the matter and analysts agree it will mark a deadline of sorts and certainly a goal for negotiations between Xstrata’s top shareholder Glencore, and Qatar, which is demanding an improved offer from the trader.
Talks between Glencore and Qatar - which has built up an 11% stake in Xstrata and carved out a role as kingmaker in the long-awaited merger - have made little or no progress over the last two weeks, with both sides indicating they are sticking to their guns.
Qatar said last week it was firm in its demand for Glencore to improve its offer to 3.25 new Glencore shares for every Xstrata share held, up from the current 2.8 ratio.
But the sources and analysts said neither Glencore nor Qatar were likely to yield until obliged.
“The Glencore guys are traders, they have a trading mentality, so they will not move before they have to,” one source familiar with the matter said. “That means they could leave any change in the ratio until 14 days before the new (shareholder meeting).”
After the 14-day mark, a deadline set by regulators, Glencore can still improve its offer ratio, but the shareholder vote would potentially have to be pushed back again.
Qatar also has little incentive to move for now.
“The longer this drags on, the better for the Qataris. They are long-term investors, they can raise their stake and other powerful shareholders may align behind them,” the source said.
Activist investor Knight Vinke, a top-20 shareholder in Xstrata, last week publicly backed Qatar.
Both sides are also expected to wait for earnings statements for the first six months of the year, due for both Glencore and Xstrata in August, before making a move.
A strong performance by Glencore’s trading business could support its ratio proposal, as would a weak performance or poor outlook from Xstrata, though this year’s drop in thermal coal prices is unlikely to have fed through yet.
A September deadline could also bring the merger into line with regulatory timetables, as EU competition lawyers point out that an EU merger notification is unlikely to be filed at the height of the European summer.
Both sides insist they are under no time pressure, but several analysts and industry sources have said the standoff between Glencore and Qatar could still end with the deal being put on ice for now.
“The deal doesn’t have to happen now. It is important for Glencore ... for the merger to happen, but it doesn’t have to happen imminently,” analyst Chris LaFemina at brokerage Jefferies said last week.
“From a strategic perspective, buying Xstrata cheaper a year from now might not be a bad option. Of course, I don’t know if they can do that - the Qataris might not accept a cheaper price a year from now,” LaFemina said.
Yet putting the deal on hold could hamper Glencore’s acquisition plans and even delay a plan to increase its stake in Kazzinc in Kazakhstan.
Analysts have considered the potential for Glencore to shift the structure of the deal, from a “scheme of arrangement” - which requires 75% of shareholders, excluding Glencore itself, to back the merger - to a straightforward takeover structure, which would require a simple majority.
Changing the structure, which means shareholders representing just 16.5% of Xstrata’s total shareholding can sink the offer, would take Qatar out of the driving seat. But a shift to a takeover would need approval from Xstrata’s board - something most analysts and sources say is unlikely.