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UPDATE: Qatar Holding Calls on Glencore to Sweeten Offer for Xstrata

Relateret indhold

--Qatar Holding says while it sees merit in merger, it wants better merger terms

--Qatar wants a share-swap ratio of 3.25 Glencore shares for every Xstrata share, up from the current proposal of 2.8 ratio

--Qatar says higher swap ratio properly recognizes Xstrata's intrinsic standalone value

By Alex MacDonald

LONDON--Sovereign-wealth fund Qatar Holding, which has amassed a substantial stake in Xstrata PLC (XTA.LN), called on Glencore International PLC (0805.HK, GLEN.LN, GLNCY) Tuesday to sweeten the terms of its merger proposal with the Anglo-Swiss miner.

The surprise announcement by Qatar Holding places another obstacle in Glencore and Xstrata's quest to secure shareholder votes for their proposed merger of equals, which would create a mining juggernaut with a market capitalization of nearly $58 billion and assets in oil, coal, base metals, precious metals and agriculture. The merger has raised the ire of some shareholders who are unhappy about a hefty retention package that would be awarded to Xstrata's management as part of the deal.

Qatar Holding said it informed Glencore Tuesday while it sees merit in a combination of the two companies, it is seeking improved merger terms.

Qatar Holding said it "believes that an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share would provide a more-appropriate distribution of benefits of the merger whilst properly recognizing the intrinsic stand-alone value of Xstrata."

In February, Glencore and Xstrata disclosed a merger of equals to create the world's fourth-largest mining company by market capitalization, based on a share-swap ratio of 2.8 new Glencore shares for every Xstrata share.

Since the merger was disclosed in February, Qatar has amassed a roughly 11% stake in Xstrata, making it the second-largest shareholder after Glencore, which owns a 34% stake.

Glencore shareholders are due to vote on the deal July 11 and Xstrata's shareholders are due to vote on the deal July 12. Based on how the deal is structured, the deal could be blocked if shareholders representing just over 16% of Xstrata's share capital vote against the deal. Glencore isn't allowed to vote at Xstrata's shareholder meeting since it is involved in the deal.

Spokespeople for Glencore and Xstrata declined to comment on Qatar Holding's statement.

Qatar's announcement marks a significant shift in its investment approach since it now looks like a strategic investor rather than an opportunistic investor. Qatar is being advised by investment bank Lazard Ltd. (LAZ) in the Glencore-Xstrata merger.

Analysts previously had said Qatar's push into the miner was opportunistic, like its other myriad investments in flagship European companies this year such Total SA (TOT, FP.FR), Royal Dutch Shell PLC (RDSA.LN, RDSA, RDSB.LN, RDSB) and Germany's Siemens AG (SI, SIE.XE).

They had also said while the merger's swap ratio seemed unattractive when it was first announced, the recent drop in commodity prices, particularly coal prices, lowered Xstrata's valuation and made the swap ratio look more reasonable despite calls from large Xstrata shareholders such as Fidelity and Standard Life Investments, who previously had said the ratio wasn't sufficiently attractive.

July 12, Xstrata shareholders are expected to vote on two separate items: the deal and retention packages valued at GBP173 million ($270 million) for 73 top Xstrata executives, including a GBP29 million nonperformance-retention package for Xstrata Chief Executive Mick Davis to remain on board.

Xstrata has said the retention packages were necessary to retain Xstrata's management, which will be responsible for operating assets that accounted for more than 80% of the combined company's income last year. Xstrata said the deal only would go ahead if the retention packages also were approved by shareholders.

The retention packages, however, have attracted the ire of several large shareholders including Fidelity, Standard Life and Royal London Asset Management, on grounds that they aren't linked to performance.

"The problem is anyone voting in favor of this [retention] plan is voting to kill the 'Shareholder Spring' stone dead and, to be honest, will destroy any credibility they have in the governance arena, so I don't think there's going to be many supporters," David Cumming, head of equities at Standard Life told the BBC's "Today" show Tuesday, according to U.K. newspaper the Telegraph. The Shareholder Spring is a movement in which shareholders of several large, U.K.-listed companies have voted against what they consider excessive pay packages.

"On that basis the deal is in jeopardy," he said. To save it, he added, "they're almost going to have to hand over to Glencore, make it a takeover rather than a merger and that might involve Mick Davis actually standing down."

Xstrata declined to comment on the matter, according to the Telegraph.

The Association of British Insurers last week issued its top alert to members, raising concerns Xstrata's pay package constituted a breach of its corporate-governance rules. The ABI's 300-plus members account for about 17% of the U.K. stock market.

Qatar Holding didn't make any comment about Xstrata's retention package in its statement and couldn't immediately be reached for further comment.

--Alex Delmar-Morgan contributed to this article.

Write to Alex MacDonald at alex.macdonald@dowjones.com.

(END) Dow Jones Newswires

June 26, 2012 19:23 ET (23:23 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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