Xstrata, Glencore Mega-Merger Shelved for Good or Waiting for Right Time?
Will the much-hyped, industry shaping $65 billion mega-merger between commodities trader Glencore International Plc and blue-chip miner Xstrata Plc, what with the investor retaliation over the planned retention payments for Xstrata Plc executives, ever push through? Or will it just remain forever floating in oblivion in a project that can be described as what could have been?
Both companies are currently in a scramble, holding emergency behind the door meetings to thresh out the issues that have made earned the investors' angst.
Over the past weeks, investors led by Standard Life Plc and Fidelity Worldwide Investment openly criticized the retention payments for Xstrata Plc's senior executives as well as the share exchange ratio. Investors claimed the $270 million worth retention payments for Xstrata Plc's top 73 managers were exorbitant.
What added more fuel into the already building fire was when on Tuesday night Qatar Holding, the sovereign wealth fund of Qatar and the second largest shareholder in Xstrata Plc, joined in the fray and announced it was vehemently against the present terms of the deal.
An announcement by Qatar Holding, which controls 11 per cent of Xstrata Plc, is "more than enough to block the merger," the Financial Times reported.
On Monday in London, Mick Davis, Xstrata's chief executive, and Ivan Glasenberg from Glencore's met to discuss the shareholder revolt against the two companies' union .
Discussions on increasing the equity component or linking pay to performance were discussed, but nothing has really been finalized, reports said.
Glencore International Plc offered to pay 2.8 of its shares for each of share of Xstrata Plc's, but Qatar Holding said the proposed figure is low.
"An exchange ratio of 3.25 per share would provide a more appropriate distribution of benefits of the merger," Qatar's sovereign wealth fund said in a statement.
The two beleaguered commodities-related companies need to expedite amending the deal as well as work on new term agreements in the coming days, or at least before July 12, when investors are expected to approve or not the merger, touted to become the world's fourth-largest mining company.
However, shareholders' feedback in recent meetings continued to thread the negative perception or impression line for the merger.
It is likely that if both issues aren't revised, the merger will get blocked and will collapse, The Wall Street Journal reported.