Now the battle in the board room's begin
"June 27 (Bloomberg) -- Qatar Holding LLC, the second- largest holder of Xstrata Plc’s shares, said Glencore International Plc should raise its takeover offer 16 percent, increasing the value of the mining company to $46.2 billion.
“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, the foreign investment arm of the country’s sovereign wealth fund, said in a statement yesterday.
Glencore, based in Baar, Switzerland, agreed to buy Xstrata in February to create the world’s fourth-largest mining company. The all-stock transaction would give Xstrata holders 2.8 shares in Glencore for each share they own, valuing the company at about 25.4 billion pounds ($39.8 billion). A 3.25 exchange ratio would value Xstrata at 29.5 billion pounds, based on Glencore’s closing price in London yesterday and the total amount of Xstrata shares outstanding.
Glencore will probably raise its offer to save the deal, said Sachin Shah, a Jersey City, New Jersey-based special situations and merger arbitrage strategist at Tullett Prebon Plc.
“The bottom line at this point is that if they want to salvage the deal then the number has to start with a 3,” Shah said of the share-exchange ratio in a telephone interview yesterday. The companies also will revise multimillion-pound retention payments to Xstrata executives, which have drawn shareholder ire, he said.
Claire Divver, a spokeswoman for Zug, Switzerland-based Xstrata, declined to comment. Simon Buerk, a Glencore spokesman, didn’t return a voicemail and e-mail seeking comment after normal buiness hours.
Shareholder Vote
Qatar Holding owned about 10 percent of Xstrata’s shares, second only to Glencore’s stake as of June 13, according to data compiled by Bloomberg. It’s being advised by Lazard, according to the statement.
Xstrata shareholders are scheduled to vote July 12 on the merger and proposed retention payments of as much as 172.8 million pounds to keep 73 Xstrata executives at the merged company. A decision going against either proposal would block the deal.
Glencore and Xstrata were considering changing the proposed retention payments, people with knowledge of the situation said. Changes may include tying the payments more closely to the future performance of the combined company, said the people, who asked not to be identified because the talks are private.
Price Pressure
Glencore, the world’s largest publicly traded commodities supplier, is barred by the U.K.’s takeover code from voting its 34 percent stake in Xstrata. That means Xstrata investors with a joint 31.75 percent stake would be able to block the payment plan and holders with 16.5 percent could vote down the merger.
The Qatar Holding statement could put pressure on Glencore’s share price, Tony Robson, an analyst at BMO Capital Markets in Toronto, said in a note yesterday.
The 3.25 ratio request is in line with BMO’s previous estimates that Glencore could “realistically” increase the ratio to 3.2 as an equitable outcome to all sides, Robson said.
Glencore fell to the lowest relative to Xstrata shares since the offer on June 25, signaling a heightened risk of the bid failing. It slid to a low of 2.58 times that of Xstrata, a 7.9 percent discount to the agreed ratio of 2.8.
To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net "
Steven
Steven Morris CA (SA)
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