Glencore courts Qatar as Xstrata revises merger pay – by Jesse Riseborough and Firat Kayakiran (June 28, 2012)

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Glencore yesterday met with Xstrata’s second-biggest shareholder Qatar Holding LLC over its call for a 16% increase in the commodity trader’s bid, people familiar with the London talks said.

LONDON (BLOOMBERG) –  Glencore International Plc and Xstrata Plc (XTA), seeking to salvage the year’s biggest takeover, moved to appease dissident investors who have threatened to derail the 16 billion-pound ($25 billion) deal.
 
Glencore yesterday met with Xstrata’s second-biggest shareholder, Qatar Holding LLC, over the sovereign wealth fund’s call for a 16 percent increase in the commodity trader’s bid, people familiar with the London talks said. Xstrata revised payments for executives intended to keep them at the combined company by adding a link to performance and made all bonuses payable in shares after holders attacked them as excessive.
 
Qatar, which spent more than $4 billion amassing an 11 percent Xstrata stake, surprised investors and analysts two days ago with its criticism of the price. It asked Glencore (GLEN) to raise its February offer of 2.8 of its shares for each of Xstrata’s to 3.25, Qatar said June 26. Pressure on the companies intensified after Xstrata revealed May 31 it planned to pay top executives 172.8 million pounds in bonuses for their loyalty.
 
“We believe this deal is important for Glencore,” UBS AG analysts Myles Allsop, Ben Davis and Danielle Chigumira said in a note today. “But we do not expect an increase to 3.25 times in the current macro and commodity environment. A bump to 3 times is possible.”
 
On June 26, the ratio between the two companies’ stocks was trading at 2.58, the lowest relative to Xstrata shares since the bid was announced. It yesterday narrowed to 2.67, reflecting a lower risk of the deal collapsing. Given Glencore’s dominant shareholding of 34 percent of Xstrata, the likelihood of a rival bid is remote.
 
‘Some Compromise’
 
“Since Qatar put a lot of money to work in Xstrata, they’ll have downside risk if they allow the deal to fail,” James Bevan, chief investment officer at CCLA Investment Management Ltd., said in an interview on Bloomberg Television. “Glencore has already got a very significant position in Xstrata so it doesn’t want the deal to fail. There will be some maneuvering, there will be some compromise.”
 
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