Qatar's sovereign wealth fund buys 5 % of Xstrata worth $2.65 bn ahead of merger

09 Apr 2012

Qatar's sovereign wealth fund, Qatar Investment Authority (QIA) has acquired a 5-per cent stake in diversified miner Xstrata, just after commodities giant Glencore Plc proposed a $41 billion merger with Xstrata.

QIA, the second biggest shareholder in Credit Suisse and Songbird, the owner of the Canary Wharf Group, has been acquiring shares in Switzerland-based Xstrata through a series of stock market transactions, which at current prices are worth $2.65 billion.

The $100 billion QIA,  has recently been acquiring stakes overseas assets, including in France's Total, luxury brands owner LVMH, French football club Paris Saint-Germain, Agricultural Bank of China, UK supermarket chain J Sainsburys and Harrods.

In February, Glencore, the world's largest diversified commodities trader, which already owns 34-per cent of Xstrata, proposed a $90-billion all-share merger with Xstrata, to create a mining and trading powerhouse with sales of $209 billion. (See: Xstrata and Glencore agree on $90-billion all-share merger)

But institutional shareholders of Xstrata like Standard Life and UK equities firm Schroders have voiced their opposition to the deal publicly, saying that Xstrata's earnings are higher and will be diluted since the new company will comprise 64 per cent of Xstrata assets, with Glencore's contribution being 35 per cent of earnings before interest and tax, and that it could contribute less than 25 per cent of the group's earnings in the future.

The Glencore camp contends that paying a small premium is justified since Xstrata has cornered most of the top management jobs including that of the CEO, while Xstrata investors say that the company's shareholders will get 44 per cent of the enlarged group, while Glencore's shareholders would get to hold 56 per cent.

Although Glencore says that majority of them are clearly behind the logic of the deal, analysts feel that the commodities giant may have to sweeten the deal.

But the minority opposing Xstrata shareholders have a larger problem in the future if the deal is blocked -  what to do with Glencore, its single largest shareholder?