Qatar to back $40bn merger between Glencore and Xstrata

Doubts over the deal fade as Qatar Holding agrees to revised terms of $40bn merger.

Qatar Holding has agreed to revised terms for the US$39.7 billion (Dh145.83bn) merger of Glencore and Xstrata, which makes the creation of the proposed commodities giant a step closer to coming about.
A vote on the largest merger of the year so far is scheduled for Tuesday, with the Qatari sovereign wealth fund's vote expected to be crucial.
Xstrata and Glencore, respectively the world's fourth-biggest miner and largest commodities trader, are both based in Switzerland. They formally announced merger talks in February.
Since then, Qatar Holding has quietly accumulated enough shares to make it the second-biggest shareholder in Xstrata with a stake of 11.6 per cent. However, because Glencore itself holds a 33.6 per cent stake in Xstrata, the merger is structured in such a way that just 16.5 per cent of shareholders can block the deal, allowing Qatar to act as a kingmaker if it chooses.
Qatar Holding "continues to see merit in a combination of the two companies and is satisfied with the terms of the proposed merger, having secured the improved exchange ratio of 3.05 new Glencore shares for every one existing Xstrata share", said the Qatari company.
Previously, the ratio for the so-called "merger of equals" had been suggested at 2.8 Glencore shares for every Xstrata share. Qatar Holding said earlier it would not accept a ratio below 3.25:1.
In midday trading in London following Qatar Holding's announcement, Glencore's shares were down 0.6 per cent at 328.95 British pence each, while Xstrata stocks rose 1.5 per cent to 962 pence.
The rally had come as some of the doubts hanging over the deal dissipated, said Jeff Largey, the head of metals and mining equity research at Macquarie in London.
"It removes a large degree of uncertainty," he said. "The market felt that the Qataris would be in favour ultimately, and for them to come out relieves some degree of uncertainty."
Qatar Holding also abstained from voting on controversial management incentives for the management of both companies, which have drawn fire from fund managers invested in them.
The company "strongly believes that retaining Xstrata's operational management is of critical importance to the successful and stable integration of the two companies, the completion of key projects within agreed timescales and to maximising the benefits of the merger," said Qatar Holding, adding it was "conscious of the sensitivities concerning governance issues in the UK and does not feel it appropriate to influence the outcome either way".
Shareholder opposition to the proposed bonus schemes could yet derail the deal, depending on which way voting blocs go, said Mr Largey.
Qatar Holding is a fully owned subsidiary of the Qatar Investment Authority, which has stakes in companies including Agricultural Bank of China, Barclays Bank, Credit Suisse and the luxury retailer Harrods.
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