'Glenstrata' merger at risk as Qatar drags its feet

Shares in Xstrata were under heavy selling pressure on Monday after Qatar Holding raised its stake in the miner, increasing speculation that the group could move to block its merger with commodities giant Glencore.

It is widely known that the Qatari state investment fund and Xstrata shareholder demands a better deal from the near-$30bn tie-up, currently valued at 2.8 Glencore shares per Xstrata share. Qatar Holding wants the offer to be raised to at least a 3.25 multiple.

"QH believes that an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata," the group said back in June.

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The merger, dubbed as 'Glenstrata' in the media, needs the approval of at least 75% of voting Xstrata shareholders to be given the green light, excluding 34% owner Glencore. Therefore, a 16.5% vote against would be enough to scupper the deal.

Qatar Holdings' latest investment in Xstrata has pushed its stake up to 11.7%, 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.

All eyes will now be on Glencore ahead of its first-half results on Tuesday, as investors will look out for any clues at whether it intends to sweeten its offer.