The potential marriage between commodities trader Glencore and metals producer Xstrata was never going to be a smooth ride, with many of the miner's shareholders demanding a better offer from the start. However, the relationship took another turn on Tuesday morning after Glencore's frontman said that the merger is 'not a must-do deal'.
Speaking after the release of Glencore's first-half results - which saw the group report a less-than-expected 17% fall in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) - Chief Executive Officer Ivan Glasenberg said that he believes that his firm's offer of 2.8 Glencore shares per Xstrata share is fair.
This comes after Qatar Holdings - the Qatari state investment fund and Xstrata shareholder unhappy with the initial offer - raised its stake in the miner earlier this week, increasing speculation that the group could move to block the merger. The group is demanding an exchange ratio of 3.25.
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The merger needs the approval of at least 75% of voting Xstrata shareholders (excluding 34% owner Glencore) to be given the green light. Therefore, a 16.5% vote against would be enough to scupper the deal. Qatar Holding's latest investment in Xstrata has pushed its stake up to 11.9%, and while this is short of the 16.5% threshold, it is not the only group that has questioned the deal - both Standard Life and Legal & General had previously expressed their uncertainty towards the terms.
Speaking to Reuters on Tuesday, Glasenberg said: "We cannot understand the position of the Qataris, asking for more than the 2.8 ratio. We have seen nothing coming out of recent results that supports this. In fact we have seen quite the opposite. [...] It is not a must-do deal. It is a deal that we believe makes sense.
"It is unlikely anyone else will come and buy Xstrata, so it still sits there for us to look at some time in the future," he said. "It is not as if it is a deal we are going to lose, or that is running away from us."
US broker Jefferies said this morning that it still expects Glencore to "meet in the middle" and "bump up" its offer from 2.8 to 3.0 Glencore shares per Xstrata share "but our conviction regarding a bump is weakening".
Markets will now be waiting for the shareholder vote on September 7th to see what happens. Will the Qataris move to block the deal and expect Glencore to 'bump', calling Glasenberg's bluff? Or will they accept the offer on the original terms on the back of his steadfastness?
Nevertheless, both Glencore and Xstrata were performing relatively well on Tuesday afternoon, up 0.82% and 1.82%, respectively, slightly underperforming the wider mining sector which was up an average 2.29%.
Glencore saw adjusted EBITDA drop 17% in the six months to June 30th from $3,845m to $3,199m, but this still came in 30% ahead of consensus estimates. The decline was attributed to the 14-28% year-on-year drop in the value of many of its key own-produced commodities.
Despite the drop in profits, group revenue gained 17% from $92,120m to $107,957m (Forecast: $95.6bn) on the back of higher oil volumes handled and a higher oil price. While this improved the top line, higher oil prices and volumes saw the cost of goods sold jump by 18%.
The group raised its interim dividend by 8% to $5.4 per share.
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