Qatar pressure boosts Glencore’s Xstrata offer

In a dramatic eleventh-hour twist, Glencore raised its offer from 2.8 shares for every Xstrata share, to 3.05 shares.

The move saw shares in Xstrata jump as much as 8 per cent today, despite falling short of the 3.25 share ratio previously demanded by Qatar’s sovereign wealth fund – a major shareholder in the miner who refused to back the original terms of the deal.

Qatar, which also owns the luxury department store Harrods and a significant stake in Sainsbury’s supermarket, is Xstrata’s second largest shareholder with a 12 per cent stake.

The £56bn merger was thrown into disarray by demands from Qatar and fellow sovereign wealth fund Norges Bank Investment Management (NBIM), which is now the fourth largest shareholder in the miner with a stake nearing 3 percent.

Glencore is Xstrata’s biggest shareholder with a 34 per cent stake but it cannot vote on the merger on its own – all that is needed to block the deal is a no-vote from 16.75 per cent of investors.

Joining forces to oppose the deal, Qatar and Norway accounted for 15 per cent of the opposition, while other shareholders are thought to be against the move.

Mega-merger

Glencore’s boss Ivan Glasenberg, who under the new plan would become chief executive of the combined group, is understood to have been working on the mega-merger for five years – and has resisted Qatar’s demands for a 3.25 share ratio in the deal.

The group’s largest investor, Mr Glasenberg is a paper billionaire with a stake worth £6bn, thanks to the firm’s record-breaking floatation on the FTSE last year.

The merger would create the world’s fourth largest natural resources group, worth $56bn. It would have operations in 33 countries, pitting it against the mining behemoths BHP Billiton and Rio Tinto.

Glencore is headquartered in Switzerland, where Chairman Simon Murray told shareholders today that there had been “overnight” developments leading to the increased offer.

It is one of the world’s largest commodities traders with operations in wheat, iron ore, copper, zinc and oil.

Anglo-Swiss group Xstrata also produces copper, nickel and zinc, and is the world’s largest exporter of thermal coal.

Power play from sovereign wealth funds

Traditionally long-term passive holders of investments, sovereign wealth funds (SWFs) have been indulging in a flurry of investments of late, arousing suspicion in an otherwise depressed financial world.

The number of SWFs has doubled in the past 10 years, according to the Fletcher School’s Sovereign Wealth Fund Initiative, clocking up total global assets of up to $6tr – an asset pool which is expected to balloon to as much as $15tr within the next five years.

There has also been a noticeable shift in investment from government bonds to equities. While the UK openly courts such investment, with Chancellor George Osborne pitching the UK as “open for business”, politicians in other countries such as the United States and France are often more hostile in their approach.

The UK is now the leading destination for SWF investments in the European Union, and is China’s most favoured land of investment for value in the EU.

However, China’s SWF China Investment Corporation previously told the British think tank Centre for Policy Studies that while CIC had “not met major resistance to our investments in the developed countries” it had encountered a certain mindset that welcomed investment but only up to a threshold of 5-10 per cent, after which the fund encountered “worries”.

As government-backed vehicles, SWFs are not obliged to publish their annual data – raising questions over transparency.

The International Monetary Fund has previously found that: “Some observers worry that SWF investments may be motivated, in certain cases, by political objectives”.

Fears of sovereign wealth funds building stakes of more than 10 per cent in companies have been drawn into focus by Qatar and Norway’s demands on Glencore. The tie-up between the two sovereign wealth funds, which own 12 per cent and 3 per cent in Xstrata respectively, has thrown the deal into disarray.