Glencore may walk away from Xstrata merger

GLENCORE HAS laid the ground for the collapse of its multibillion merger with miner Xstrata, saying it was “not a must-do deal”, as it rejected calls from Qatar’s sovereign wealth fund for better terms for the tie-up.

The warning came as the world’s largest commodities trader delivered better-than-expected results for the first half of the year, further strengthening its hand in the battle for control of the mining group, in which it owns a 34 per cent stake.

The results will shape last-minute talks between Glencore and Qatar Holding, the emirate’s sovereign wealth fund, about the proposed merger with Xstrata, which was valued at nearly $90 billion when it was revealed in February.

Glencore is the largest shareholder in Xstrata, but Qatar, which has amassed a near 12 per cent stake, has enough shares to single-handedly block the merger. The trading house is offering 2.8 of its shares for each of the miner’s. Qatar, with the support of other Xstrata shareholders, is demanding that be raised to 3.25 shares.

Glencore chief executive Ivan Glasenberg warned Qatar yesterday that the merger was “not a must-do deal”, openly suggesting he was ready to walk away. He added that the deal’s collapse would not be the “end of the world. We will move on.”

Bankers and analysts are growing increasingly worried that the deal will collapse, although they said the door was not yet closed to a last-minute agreement.

“Glasenberg could still make an 11th-hour offer to Qatar, but right now we are witnessing the meltdown of the biggest deal of the last five years in the natural resources industry,” said one banker involved in the discussions.

Xstrata this month also emphasised its standalone growth prospects – another sign that both companies are preparing for the end of the merger talks.

Investors are pricing in that the deal will collapse ahead of an Xstrata shareholder meeting called for early September.

Glencore said net income fell to $1.8 billion in the first six months of the year, down 26 per cent from the same period last year, but ahead of the consensus forecast of $1.6 billion. Earnings before interest and tax fell 24 per cent to $2.5 billion, beating the consensus forecast of $2.4 billion. – Copyright The Financial Times Limited 2012