Ivan Glasenberg, Chief Executive of Glencore, is to abandon a meeting with Qatar’s state investment fund this week, in a bid to save his $57 billion merger with rival commodities giant Xstrata.
Glasenberg believes that by choosing to walk away from an increase merger terms with Xstrata, he can save himself from signing an overpaid deal.
The South African-born Glasenberg, who owns 15.8 percent of Glencore’s shares, has offered 2.8 ratio shares for every Xstrata share but Qatar surprised fellow investors last week when it rejected his offer and threaten to veto the deal unless Glencore improved its bid. Qatar has built an 11 percent stake in Xstrata, and demanded 3.25 ratio shares instead.
However, Glasenberg is planning to meet Ahmad Mohamed al-Sayed, Qatar Holdings principal, the state investment arm, this week to discuss the merger in the hope of bridging the gap.
Qatar holding had released a statement last Tuesday in which it said it believed the Glencore merger scheme of arrangement - which values one of the Xstrata’s shares at 2.8 of Glencore’s - undervalued the FTSE 100 company. According to The Telegraph, the Qatari statement said that while it saw “merit in a combination of the two companies, it is seeking improved merger terms.”
However, Qatar Holdings claims that over the long-term, Xstrata’s mineral assets will be worth far more than Glencore’s current valuation. Yet, Glasenberg does not want to increase the offer for the sake of one party.
Glasenberg is considering all options — from walking away from the merger to changing its structure regardless of Qatar’s demands. He can also switch from a “scheme of arrangement” to a traditional takeover.
While Glencore holds a 34 percent stake in Xstrata, Glasenberg needs an approval from three quarters of Xstrata investors, not counting the shares that Glencore owns.
Last week Xstrata managed to reduce the criticisms of some investors over chief executive Mick Davis’ $45.6 million retention package by attaching performance criteria to retention awards for all executive directors, according to The Telegraph on Saturday.
It followed a story in The Sunday Telegraph in which shareholders accused Sir John Bond, Xstrata’s chairman, of not listening to them over executive pay.
Meanwhile, Glencore is understood to be ready to post a “full and final” offer at the 2.8 ratio, rather than meet Qatar’s demand.
However, Qatar is showing interest to remain a big investor in Xstrata if the Glencore merger collapses.
On the other hand, bankers said its failure would lead to a collapse of up to 20 percent in Xstrata’s share price — nearly $7.6 billion.