LONDON Glencore's (GLEN.L) $30 billion bid for miner Xstrata XTA.L 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 (LMI.L).
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, signaling higher prices and more arbitrage in the second half.
(Additional reporting by Sarah Young; Editing by Andrew Callus and Greg Mahlich)