Commodity trader Glencore's $32 billion takeover of miner Xstrata looked set to go ahead after Qatar Holdings - the bid target's second-largest shareholder - backed the deal.
Qatar, an unexpected kingmaker in Glencore's bid for Xstrata, said on Thursday that it would vote in favor of two key resolutions on the takeover aimed at creating a mining and trading powerhouse.
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In a snub to Xstrata management, Qatar said that it will abstain from voting on a multimillion-pound management retention plan, which increases the chances of that aspect of the deal being voted down.
"In a nutshell, this means the deal is all but done," Liberum analysts said.
Qatar's support for the deal, first announced in February, comes after its surprise opposition to terms in June and brings Glencore within weeks of sealing its long-running pursuit of the Swiss mining company.
Under a complex structure of votes, Xstrata investors will be able to express their views on the management retention plan without endangering the merger.
Xstrata has argued that the retention plan is necessary to the success of the merger because it will ensure that key managers stay on to oversee the shift into a phase of significant volume growth at the company's mining projects.
"If the management incentive arrangements do not get passed, it raises some question marks about the success of the deal," Macquarie analyst Jeff Largey said.
Several Xstrata shareholders, including Standard Life Investments and Fidelity, have criticized the pay plan, arguing that it is unnecessarily greedy.
Qatar was reluctant to become involved in the debate over management pay, which has been raging in Britain since the so-called shareholder spring. Though Qatar has taken an active role in its investments, it was also reluctant to be branded an as an activist investor.
Qatar's abstention on the retention plan, which offers more than 70 top executives a total of roughly 140 million pounds ($222 million), will be an embarrassment for Xstrata, which until last month insisted that the takeover be tied to the pay deal.
Macquarie analyst Largey said that Xstrata's image would not be enhanced by its attempt to be "a little too cute" with its stance on the retention scheme and vote.
The position of Xstrata Chairman John Bond, set to retain the role at the enlarged group, will look difficult if there is a vote against the retention scheme. Such an outcome could strengthen the view of some shareholders that, having been behind a retention plan that risked sinking the deal, he should not remain at the helm of the merged entity.
The vote, scheduled for November 20, two days before the European Union is due to give is verdict on the tie-up, comes after Glencore bowed to investor pressure with a raised bid in September. Glencore increased its offer to 3.05 new shares for every Xstrata share, from an earlier bid of 2.8 per share.
Shares in Xstrata rose 1.5 percent to 962p by 1047 GMT on Thursday, moving closer to Glencore's offer, indicating that the market expects the deal to go ahead.
The tiny, gas rich Gulf state of Qatar has built up a stake of more than 12 percent in Xstrata - a key position in a deal structure that allows only 16.5 percent of Xstrata shareholders to block any bid. ($1 = 0.6310 British pounds)
(Additional reporting by Clara Ferreira Marques; Editing by Rhys Jones and David Goodman)