Norway has joined forces with Qatar in opposition to the $70 billion merger between commodities trader Glencore and miner Xstrata, further threatening one of the biggest deals in the natural resources industry over the past decade.
Norges Bank Investment Management, the manager behind Norway’s oil-backed sovereign wealth fund, has spent more than $500 million over the last few weeks buying Xstrata shares, according to regulatory fillings.
The move replicates the same strategy followed by fellow sovereign wealth fund Qatar Holding of boosting its stake in the miner to make its voice against the deal stronger.
NBIM is now the fourth largest shareholder in Xstrata – behind only Glencore , Qatar and BlackRock – with 87.8 million shares, equal to roughly 2.97 percent of the total and up from 1.72 percent in June.
The Norwegian buying spree came after NBIM privately indicated to both Xstrata and Glencore that it opposed the current terms of their planned merger. NBIM, Qatar Holding, Glencore and Xstrata all declined to comment.
Glencore is offering 2.8 of its shares for each of Xstrata’s but Qatar said in June that a ratio of 3.25 “would provide a more appropriate distribution of benefits of the merger”. The sizeable gap suggests the “Glenstrata” merger will collapse.
The stock market is widely betting that the merger will fail, with the share ratio between the commodities trading house and the miner falling on Tuesday to 2.445 times, the lowest since the deal was announced in February.
Glencore and Xstrata have also started to highlight their standalone futures, another sign their executives no longer believe their combination will come to fruition.
The buying spree by the two sovereign wealth funds gives Qatar and Norway de facto veto power in the tie-up.
The structure of Glencore’s offer for Xstrata allows a group representing 16.5 per cent of the miner’s shareholders to block it.
Bankers involved in the deal believe just 12 percent – the stake controlled by Qatar – would be enough to block the merger as some shareholders would either abstain or not vote.
Ivan Glasenberg, Glencore chief executive, and Mick Davis, his counterpart at Xstrata, now have two weeks to convince Ahmad al-Sayed, head of Qatar Holding, and Yngve Slyngstad, NBIM chief executive, to save the deal before a vote of Xstrata shareholders scheduled for September 7.
Mr. Glasenberg last week said his group was ready to walk away from the merger rather than to increase its offer to the level Qatar was asking. “If it does not happen – no big deal,” he said in a conference call with investors.
“It is not the only deal that can be done,” he added, pointing to other Glencore acquisitions, including its C$6.1 billion (US$6.2 billion) purchase of Toronto-listed grain handler Viterra since the Xstrata merger plans were announced.