Qatar blocking the Xstrata deal due to be bruised feeling by the Qataris over being squeezed in the Glencore IPO ?

http://www.telegraph.co.uk/finance/newsbysector/industry/mining/9499896/Qataris-seek-25pc-of-Xstrata-if-Glencore-deal-collapses.html

By Helia Ebrahimi

10:30PM BST 25 Aug 2012

8 Comments

Qatar Holding is poised to raise its stake in Xstrata to 25pc should the miner’s planned tie-up with Glencore collapse, giving it a de facto veto over any future merger.

Sources close to the bid told The Sunday Telegraph that Qatar Holding has assured Xstrata’s chief executive Mick Davis that he will have their full backing should shareholders block the tie-up with Glencore, a move that would send the miner’s share price plummeting. It is understood Qatar, which already owns 12pc of Xstrata, would step in to increase its stake to up to 25pc.

The strategy is thought to be an opportunistic attempt to buy in at a bargain price, and a strategic move to ensure Glencore boss Ivan Glasenberg will never be able to force through a deal without its consent. Qatar declined to comment.

Glencore is Xstrata’s biggest shareholder with 34pc, but the Swiss commodities trader is barred from exercising its votes on a tie-up. As a result, a stake of just 16.75pc would give Qatar absolute power to block a merger with Glencore, while a larger holding would give it real sway over the miner’s board.

Xstrata’s shareholders are due to vote on the recommended “merger of equals” between the two companies on September 7, but Qatar probably already controls enough of the company’s shares to scupper the tie-up.

A source close to Glencore insisted: “This deal is not going to go away.” But with Mr Glasenberg refusing to overpay for Xstrata, the two sides are at a stalemate. Glencore and Xstrata shares closed at a trading ratio of 2.53 on Friday, their furthest from the 2.8 offer ratio since the deal was announced in February.

Qatar’s threat comes as Pirc, the corporate governance watchdog, urges shareholders in Xstrata to vote down the “Glenstrata” deal because of close links between both companies and their chief executives. “There is no evidence that Xstrata have undertaken the appropriate due diligence on Glencore in order to protect Xstrata shareholders,” said Pirc in a note to members.

“In addition the level of independent representation on the Board is insufficient.”

The Association of British Insurers has already issued an “amber top” warning about the deal to its members, which include major institutional investors.

Last year Qatar held talks with Mr Glasenberg and his advisers about a sweetheart deal that would have seen the fund make a major investment in Glencore’s IPO. But when Glencore finally floated, the order book for available shares was oversubscribed and Qatar was not given the allocation it thought it had been promised. There has been speculation that Qatar may hold a grudge about the perceived slight, although few outside the Gulf state can be certain of the fund’s true motivation.

“There is very little transparency about why the Qataris are behaving this way,” added one banker working on the deal. “This could all be brinkmanship,” added another adviser.

Qatar’s current investment in Xstrata, which has been bought at an average price of £11-per-share, is thought to be under water at an exchange rate of 2.8 shares.

In the wake of recent violence at Lonmin’s South African platinum mine, investors have become weary of miners such as Xstrata, which also operates in risky countries. The shift in sentiment has helped Glencore which is perceived as a safer bet and some of Xstrata shareholders, reticent in the past, are now thought more likely to vote the deal through.