Qatar Sovereign Fund (Qatar Holdings) (Qatar Investment Authority) has reiterated its position to vote against the much awaited decision on the proposed merger between Xstrata PLC (LON:XTA) and Glencore International Plc (LON:GLEN).
The Fund had earlier in June proposed for 3.25 ratio of shares in the commodities trader for each of the miners, whereas Glencore International Plc (LON:GLEN) tabled a 2.8 share deal. Following this proposition by Glencore, Qatar Holdings said that the Swiss-based commodities trader could not count on its support.
The deal is set in such a manner, that upon acquisition, Glencore will become a minority partner of Xstrata, in a resulting merger value of approximately $70 billion. According to Wall Street Journal, Qatar Holdings, which holds 12.3% in Xstrata, did not mention the 3.25 ratio requirement, which indicates that the firm could be interested in taking a lower rate upon negotiations.
Additionally, the fund is quoted in a statement saying, “although it continues to support the principle of a combination of Glencore International Plc (LON:GLEN) with Xstrata Plc (LON.XTA), it has determined that it won’t support the proposed merger at the current terms. “
Glencore, which reported a drop in profits in its half year results, also expressed its desire to go on with the Xstrata merger, and had indicated that it would not pay more than the company is worth, stating that it would not be the end of the world if the merger did not happen.
On the other hand, Qatar Holdings has indicated that it would be comfortable with either case, stating that Xstrata could do well as a stand alone company, and therefore, it wouldn’t matter if the deal fell through. This scenario indicates that both companies have taken a pragmatic approach in the negotiation process, albeit with a soft spot.
Qatar holdings has been on the lookout to invest globally and diversify its portfolio in the recent times; the firm has already started negotiations for a possible 6% stake in Morgan Stanley (NYSE:MS), and if the deal is closed, this would set the Qatari fund well in the oil, metals, and gas commodities market. On the other hand MS, which has been on the lookout for cash to bolster its capital, would be forced to welcome the Qatari fund on board.
Other reports connote that Qatar holdings and Glencore International Plc (LON:GLEN) have not been communicating in recent weeks, due to their different valuations of the merger stakes, and according to the Financial Times, it would be impossible for the Commodities trader to back off from the deal before voting next week, as it had already agreed to pay Xstrata Plc (LON.XTA) a total of £298 million, if it backed off from the deal.
If the shareholders go to the vote on September 7th under these circumstances, it could easily result in a No vote, as the Qatari fund, with its 12.3% holding inXstrata Plc (LON.XTA) would likely receive backing from other like-minded shareholders, thereby throwing the deal through the window in a matter of minutes.
At the close of market at the London Stock Exchange today, Xstrata Plc (LON.XTA) closed at £952.20 per share, up £51.20, or 5.68% from yesterday’s close, while Glencore International Plc (LON:GLEN) closed at £385.05 per share up £27.60 or 7.72%.