* Glasenberg says Xstrata bid is "not 'now or never'"
* First-half net profit down 26 pct at $1.8 bln
* Profit drop marginally narrower than expected
* Industrial operating profit down 32 percent
* Marketing operating profit down 11 percent
By Clara Ferreira-Marques
LONDON, Aug 21 Glencore's $30 billion
bid for miner Xstrata is not a "must-do deal" its chief
executive said on Tuesday, in making the company's strongest
suggestion yet that it will not yield to key shareholder
Qatar's demands for an improved offer.
Ivan Glasenberg, speaking after the commodities trader
reported a smaller than expected drop in its first-half profit,
expressed exasperation with Qatar Holding, which has been in a
stand-off with Glencore since the sovereign wealth fund
surprised the market by demanding an improvement to Glencore's
offer of 2.8 new shares for every Xstrata share.
Qatar has increased to 12 percent a less than 3 percent
stake in Xstrata since the all-share bid was announced earlier
this year, less than Glencore's own 34 percent holding but
enough to block the takeover under the current deal structure.
"We cannot understand the position of the Qataris, asking
for more than the 2.8 ratio. We have seen nothing coming out of
recent results that supports this. In fact we have seen quite
the opposite," Glasenberg told Reuters in an interview. "It is
not a must-do deal. It is a deal that we believe makes sense."
While Glasenberg, speaking three weeks before a Sept 7 vote,
stopped short of saying he would definitely not raise the
current offer, he told reporters and analysts to "take
conclusions" from his comments, adding Glencore could walk away
and return to the merger proposal in a year or two.
"It is unlikely anyone else will come and buy Xstrata, so it
still sits there for us to look at some time in the future," he
said. "It is not as if it is a deal we are going to lose, or
that is running away from us."
Glencore, which listed precisely to gain the firepower to do
bigger deals, announced in February it would bid for the Xstrata
stock it does not already own in a move to create a mining and
trading powerhouse. Qatar, however, broke months of silence in
June by demanding a ratio of 3.25 to back the deal.
Neither Glencore nor Qatar, buying Xstrata shares almost
daily, have shown any sign of blinking in the standoff. While
several analysts said it was too soon to write off the merger,
they also said on Tuesday the risk of collapse had risen.
"Our base case is still for a bump to (a share exchange
ratio of) 3, but our conviction regarding a bump is weakening,"
Jefferies analysts said in note.
"It is not clear to us whether Glencore is talking down the
market's expectations to soften Xstrata's oppositional
shareholders, ultimately surprising to the upside with a bump to
3, or whether Glencore is just being completely transparent
about its true intentions and does not plan to bump at all."
The market was also unclear, with Xstrata shares up by just
over 1 percent at 920.1 pence at 1245 GMT and Glencore almost
flat at 354.4 pence.
"Given the fact that maybe a bump from 2.8 to 3 - which is
only about 7 percent - would do it, I still think that it'll
probably get done at a little bit higher," analyst Nik
Stanojevic at stockbroker Brewin Dolphin said.
Sources familiar with the negotiations had expected talks
between Glencore and Qatar to resume after earnings and the end
of Ramadan, but Glasenberg said no meeting was yet planned.
MARKETING HOLDS, PROFIT DROPS
Glencore said its net profit in the first six months of the
year fell 26 percent, less than analysts had forecast as
resilience in its trading business, even as margins shrank,
offset the impact of falling commodity prices.
Like Xstrata earlier this month, however, Glencore used
results presentations to investors to paint a picture of a
company with standalone growth prospects.
Brushing off worries over the potential impact to its credit
rating, currently two notches above junk, if the cashflow-rice
Xstrata merger deal falls through, Glencore said it would
continue to focus on brownfield expansions which it says are
less likely to face cost overruns than greenfield projects being
tackled by larger mining rivals.
The company said the structure of a long-awaited $3.2
billion deal to raise its stake in Kazakh metals producer
Kazzinc to over 90 percent was under review, though should
complete this year. Deal options were also arising elsewhere,
however, with "knocks on the door" from financially stretched
producers increasing, it said.
Glencore's net profit for the first half dropped to $1.81
billion, putting the miner on track to match its 2011 full year.
Overall operating profit for Glencore's trading arm fell 11
percent in the half - dented by poorer results from energy
trading on what Glencore said were fewer arbitrage opportunities
and a tough freight market, though the contribution of its
largest trading arm, metals, rose on tight inventory levels.
The picture was more mixed in Glencore's industrial
division, which houses its production assets ranging from coal
mines to oil wells and farms and where operating profit fell 32
percent. That was largely due to the impact of falling prices in
its metals operations, where profit more than halved.
Miners have had a tough time, reporting their first profit
falls since 2009.
Two weeks ago Xstrata, one of the world's largest producers
of copper and thermal coal, reported a 31 percent fall in
first-half profits, despite cost cuts that helped the miner
offset stubbornly high wages and inflation.
However, the miner also took a $514 million writedown on the
value of its near 25 percent stake in troubled South African
platinum miner Lonmin.
Glencore is also increasing profits from its agricultural
commodities arm and said on Tuesday it expected to benefit from
what it said was some of the toughest U.S. agricultural
conditions since the 1930s Dust Bowl after a crippling drought,
signalling higher prices and more arbitrage in the second half.