Qatar’s intervention pushed the deal to the brink as it prompted some shareholders to revisit their own particular concerns, such as soaring executive pay and fears that the combined entity would take on riskier business.
LONDON (Reuters) – Commodities trader Glencore battled to save its coveted $26 billion bid for miner Xstrata on Wednesday after key shareholder Qatar stunned the pair with a late demand for better terms.
The Qatari intervention pushed the deal to the brink as it prompted a string of shareholders to revisit their own particular concerns, such as soaring executive pay and fears that the combined entity would take on riskier business.
Qatar, which had remained silent for months as it built the second-largest stake in Xstrata, said in a statement late on Tuesday that it supported the principle of the deal but wanted 3.25 new Glencore shares for every Xstrata share, up from the 2.8 on offer.
The 11th-hour call will make it almost impossible for the deal to go through on current terms, several sources close to the deal said, leaving just two days for Glencore to sweeten the offer or delay shareholder meetings scheduled for mid-July.
The very public move also emboldened other wavering investors, particularly those angry over the hefty packages being offered to retain top executives at Xstrata, including an extra 29 million pounds over three years just to keep Chief Executive Mick Davis.
“The intervention by Qatar was unexpected but highly welcome and will certainly bolster the resolve of current holdouts,” Simon Wong, partner at corporate governance watchdog and shareholder advisory firm, Governance for Owners.
In the first sign of movement, Glencore said it was considering proposals put forward by the board of Xstrata to change certain aspects of the management incentive arrangements.
Several sources familiar with the situation said the proposed changes included tying the retention packages to performance and shifting the plans from cash to equity. One source added that the tie to performance would specifically involve linking pay to cost cuts through the new group.
Paul Lee, director of Hermes Equity Ownership Services, which is voting on behalf of around 1 percent of Xstrata’s investors, said a simple bump-up in the ratio would not be enough to persuade them to back the deal.
“Xstrata to our mind has a pretty good record in risk management. That is less true of Glencore. Lots of investors are most troubled by the ratio and the retention packages, but they haven’t really focused on this issue. The immediate question over price is pretty irrelevant in that context. (But) on the pay side, perhaps the board will have to assess where they are when they truly understand the depth of investor feeling. They have misjudged this quite significantly.”
Analysts and other Xstrata shareholders warned that Glencore could simply refuse to budge on the larger issue of the deal structure, putting the bid at risk and delaying any subsequent effort for at least six and perhaps as long as 12 months.
“Whether Glencore now wishes to raise its offer, having faced down independent shareholders for the last four months, is questionable,” said Neil Dwane of CIO Allianz Global Investors Europe, another top 35 Xstrata investor.
“The Qatar ratio would be circa 10 percent dilutive to Glencore. In fact, given the coordinated global economic slowdown, an argument could be made for actually lowering the price to reflect worsening prospects for miners.”
The Thomson Reuters-Jefferies CRB index, a barometer for commodities, has fallen by about 14 percent since early February, when Xstrata and Glencore announced the deal.
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