LONDON/ZUG, Switzerland (Reuters) - Trader Glencore has raised its offer for miner Xstrata in a last-ditch attempt to rescue one of the sector's largest ever deals, after months of opposition from Qatar's sovereign wealth fund and other shareholders.
After early excitement in the market on Friday, however, it remained unclear whether the revised proposal would succeed.
Xstrata's independent directors issued a strongly worded statement questioning its structure, and sources familiar with the matter said Qatar could oppose major elements of what is still only an indicative deal.
Glencore's Chief Executive Ivan Glasenberg appeared to have broken an impasse between Xstrata's two biggest investors - who had not talked to each other for two months - after overnight talks in London.
The meeting, attended by Glasenberg, Qatari prime minister Sheikh Hamad bin Jassim al-Thani and former British prime minister Tony Blair - who has had a role in facilitating the deal - put the takeover now worth $36 billion back on the table.
Xstrata shareholders had been due to vote on the original $34 billion bid on Friday, with a rejection widely expected. But Glencore, already Xstrata's biggest shareholder with a 34 percent stake, then proposed the revised offer of 3.05 new shares for every share it does not already own, up from 2.8.
Qatar, Xstrata's second largest shareholder, had demanded a ratio of 3.25 in June, though in recent days sources involved in the deal had said the Gulf state could compromise.
"Ivan showed what everyone suspected - he needs this deal more than anyone else," said one source familiar with the deal.
Glencore has long coveted a full tie-up with Xstrata to create a mining and trading powerhouse. It made its first move in February, less than a year after it floated on the stock market in a listing largely motivated by its desire to do more ambitious deals.
"This is going to get pretty dramatic, it's gone to all-out war," said one of the sources.
Details of the latest indicative offer - Glencore has yet to make a firm bid - were unexpected even by Qatar, several sources familiar with the matter said.
Changes in the new proposal include making Glasenberg chief executive of the new group instead of Xstrata's Mick Davis, a veteran manager with a strong operating record who would have taken the helm under the original deal with Qatari support.
The role for Davis and his team, if any, is unclear under the revised proposal, and the change could draw an end to the South African manager's career at Xstrata after a decade.
Looking tense and tired at Xstrata's shareholder meeting in Switzerland, Davis declined to comment on his plans as the vote on the deal was postponed.
Glencore also said it could change the offer's structure, from a complex arrangement that requires 75 percent approval of non-Glencore shareholders, to a straightforward takeover requiring a simple majority of Xstrata shares.
"The potential change of structure from scheme of arrangement to a takeover is significant," said one of Xstrata's largest 40 investors. "It makes forcing the deal through more likely."
Xstrata, in a statement, cited a letter from its independent directors to Glencore. This questioned the revised offer's 22 percent premium to Thursday's closing share price as "significantly lower than would be expected in a takeover". It also criticized the intention to replace Davis and to change incentives for executives to stay with the company as a "significant risk" to its operations.
Several sources said it was also not clear whether Qatar backed the management changes and the potential shift to a simple takeover. One source said Qatar felt the 3.05 ratio was not directly comparable with the 2.8 in what was now effectively a proposed takeover.
Qatar, which had not held talks with Glencore for two months before Thursday night, has not yet commented on the offer.
"My gut tells me that Ivan has played this very cleverly... He's met them halfway, declared this as a takeover and there's no clarity on whether Mick or any of his team are going to be involved," said Richard Buxton, who is head of UK equities at Schroders, one of Xstrata's top 20 shareholders.
"We would still oppose, but the Qataris are the kingmakers and it partly depends on what they do... But it will clearly affect how long we wish to remain an investor in the combined entity if it occurs on these terms."
Buxton dismissed the revised bid as "still inequitable".
Glencore's bid had been heading for the rocks after Qatar, with 12 percent of Xstrata, said it would vote down the deal unless it was improved.
Industry sources and those involved in the bid had not ruled out a last-minute U-turn from Glencore before Friday. However, Glencore's Chairman Simon Murray shocked shareholders gathered in the Swiss town of Zug by hurriedly cancelling a general meeting, citing unspecified "overnight developments".
Murray, who emerged alone to make his statement, then rushed out of a back door.
Just two hours later, Xstrata postponed its own meeting and announced the revised terms itself. Glencore has not made a statement on the proposed changes to the deal.
Xstrata shares ended the day up 3.6 percent at 1,014 pence, off earlier highs after hints of opposition. Glencore's were down 3.6 percent at 378 pence, which would value each Xstrata share at almost 1,152.9 pence under the new ratio, midway between Glencore's offer and Qatar's demands.
Some Xstrata investors were content with the new proposal. "I'm very satisfied with the new terms. I think we would be disappointed if we were Glencore shareholders, but we are happy because we are Xstrata," said Thomas Mitsoulis, asset manager for one shareholder.
Top-ten shareholder Standard Life also backed the proposal.
Glencore is being advised by Citigroup, Morgan Stanley, Credit Suisse and BNP Paribas. Xstrata is being advised by Deutsche Bank, JP Morgan, Goldman Sachs and Nomura, with a role also for Barclays Capital.
Both sides were advised by an independent consultant, former Citi banker Michael Klein, who shuttled between executives to broker the deal. Qatar Holding is being advised by Lazard.
Additional reporting by Sophie Sassard, Sinead Cruise, Sarah Young, Dinesh Nair and Chris Vellacott; Editing by Andrew Callus and David Stamp