Britain's takeover regulator has given mining group Xstrata Plc an extra week to decide whether to accept the $36 billion revised offer from Glencore , prompting jitters over what is the latest twist in a seven-month saga.
The unexpected extension - granted at the request of both firms - surprised the market, which had been expecting Xstrata to announce its decision by Monday at the latest.
Analysts attributed the delay to talks around management incentive schemes and the nomination of Glencore's chief executive for the top job at the merged entity, rather than Xstrata's, which was proposed by Glencore in what it called its final offer, made earlier in September.
Shares in Xstrata closed down 4.2 percent in London while Glencore fell 1.7 percent.
"The extension was requested to enable Xstrata's independent non-executive directors to take full account of feedback from consultation with key Xstrata shareholders," Xstrata said in a brief statement.
It now has until Oct. 1 to say whether or not it will recommend Glencore's offer to shareholders, having first backed a lower offer in February.
Glencore, already Xstrata's biggest shareholder, raised its offer to 3.05 shares for every Xstrata share held from a previous offer of 2.8 shares, in a last-ditch attempt to rescue the deal after Xstrata's second-biggest investor Qatar Holding demanded improved terms in June.
The new proposal differs from the original one, not only in value but also in the fact that Glencore's chief executive, Ivan Glasenberg, is to take over the helm of the combined business from Xstrata chief Mick Davis within six months.
Davis would have stayed for at least three years under the original deal.
Some shareholders and analysts said that while the delay to Xstrata's decision was negative for the share price and raised uncertainty, they still expected Xstrata to back the deal.
"We still think Xstrata's board will give its approval on or before Oct. 1," said Anne-Sophie D'Andlau, co-founder of Paris-based hedge fund firm CIAM who, like a number of hedge funds, has profited from a long Xstrata, short Glencore position.
The management changes and issues around the retention of key Xstrata staff were likely to be on the investor feedback list with which Xstrata was grappling, said some analysts.
"What points of substance were not raised at the 2.8 exchange ratio that are now being raised when it was supposedly all buttoned up at 2.8? Clearly it all comes back to the role of Mick Davis," Bernstein analyst Paul Gait said.
Davis has held the top job at Xstrata for a decade, building it up from a $500 million collection of zinc and ferrochrome assets into the world's fourth-largest diversified miner.
Qatar owns more than 12 percent in Xstrata, giving it a key position in a deal structure which allows just 16.5 percent of Xstrata shareholders to block any bid.
Investors have been broadly supportive of the revised offer, though Qatar has yet to make its view public.
Qatar declined to comment on the granting of the extension after saying earlier this month it was considering its position and would take into account the views of Xstrata's board.
Glencore has invited Xstrata to suggest changes to the retention and incentive packages for the miner's staff to help ensure the arrangements are acceptable to independent Xstrata shareholders.
The hefty pay packages offered to retain over 70 of Xstrata's top managers in the original deal plan had irked investors, and in June Xstrata took steps to try to appease shareholders by proposing that awards would be paid entirely in shares and would only fully vest if an additional $300 million of cost savings were achieved in two years.
Some investors see the incentive packages as important to the merged entity's future success, believing in the need to retain top Xstrata managers who will be in charge of new mining projects which are set to boost the company's volumes by 50 percent by 2014. (Additional reporting by Kate Holton and Laurence Fletcher; Editing by Andrew Heavens and David Holmes)