The world's biggest mining deal hangs in the balance as Xstrata shareholders vote today on a controversial takeover proposal by Glencore.
The outcome of the vote, to be held at a theatre in the Swiss city of Zug, will determine if a US$72 billion (Dh264.46bn) mining and trading behemoth spanning Australia to Argentina comes to life.
The vote also has repercussions for Abu Dhabi, as the investment vehicle Aabaris a cornerstone investor in Glencore. Qatar Holding, a major shareholder in Xstrata, announced in June that it would block the merger unless more favourable terms were offered.
Besides the Qatari sovereign wealth fund, a number of other Xstrata shareholders have emerged to oppose the all-share takeover offer of 2.8 Glencore shares for every one of Xstrata.
Sanford C Bernstein, a Wall Street research firm, said last week a "fair exchange" would be at 3.16 times. Qatar has said it would approve a merger at 3.25.
"Should the merger be concluded successfully below 3.16 times, Glencore offers, in our view, a 'cheap' way of accessing the fundamental upside we see in Xstrata's assets," Paul Gait, an analyst at Bernstein, wrote in a research note.
"However, given the rich exchange ratio demanded by Xstrata's largest shareholder, we question whether the merger can be completed at this point, implying some near-term downside risk for Glencore's stock should the deal collapse."
Yesterday, the share price of both companies rose in London afternoon trading as hopes for a merger waned. Glencore rose by 5.45 pence to 394.95 pence a share, while Xstrata rose 14.60 pence to 949.70 a share. Xstrata shares are trading at 2.40 times to every one of Glencore, a 14 per cent discount to the proposed takeover price.
For the merger to happen, three quarters of Xstrata shares not already owned by Glencore must be voted in favour of the deal.
The vote comes at a gloomy time for the mining industry as the economic downturn saps the prices of commodities from coal to zinc.
Xstrata's profits for the first half of this year fell 33 per cent to US$1.94 billion (Dh7.12bn) from a year earlier. Glencore earnings dropped 24 per cent to $2.51bn in the same period.
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