London, England — 28 May 2012 – Leading integrated commodities producer Glencore will move into the final stage of its long-awaited US$30 billion takeover of global diversified mining group Xstrata this week, as shareholders are sent detailed documents on the deal, kicking off a last charm offensive ahead of July votes.
But, reports Reuters, Xstrata investors hoping for an improvement to the all-share offer are likely to be disappointed, at least for now. This is because of technical changes set to support Glencore shares over the coming weeks, share sales by prominent naysayers, and stake-building by Qatar, whose sovereign wealth fund now has more than 9% of Xstrata and is expected to back the deal.
Glencore, which already owns almost 34% of the miner, is offering 2.8 new shares for every Xstrata share held to conclude its long-standing plan to create an integrated mining and trading powerhouse. Those terms will likely be confirmed in the documents, due out by Thursday, though Glencore can still increase the bid up until a few days before shareholders vote.
“Qatar seems reasonably likely to approve the 2.8 ratio. So given that, the chances of an increase in the ratio from 2.8 to something modestly higher have probably lessened slightly, and the probability that the deal will get done has increased,” said Nik Stanojevic, an analyst at Brewin Dolphin.
“We continue to see negligible scope for a ‘bump’ to the terms and larger downside risks for Xstrata shareholders in the increasingly unlikely event that the deal is voted down,” Liberum analysts said.
Ingredients that helped Glencore, they said, included an increased focus on the rising cost of new greenfield projects “’ a bonus for the trading giant which has bet on low capital intensity and brownfield growth.
But Reuters says the last round of meetings after the documents are published will be crucial for Glencore, which needs the backing of minorities thanks to the deal structure.
It requires at least 75% of shareholders excluding Glencore to approve the offer, meaning opposition from investors representing more than 16.5% of Xstrata’s total shareholding would be enough to derail it. And there is still opposition to the deal on current terms.
“They want control of the assets and to control them in a different way – but we are not being paid for that change of control. It’s pretty clear what is in this for Glencore but not so much for Xstrata,” one top-20 shareholder said this month.
Yet at least two of Glencore’s most vocal opponents on the Xstrata shareholder register, Standard Life and Schroders, have been selling down their stakes, according to regulatory filings.
Source: Reuters Africa. For more information, click here.