Commodity trader Glencore's $32 billion takeover of Swiss miner Xstrata looked set to go ahead after winning the backing of Qatar Holdings, the bid target's second-largest shareholder.
Qatar, an unexpected kingmaker in Glencore's bid for Xstrata, said on Thursday it would vote for two key resolutions on the takeover, which is aimed at creating a mining and trading powerhouse.
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In a snub to Xstrata management, Qatar said 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, came after its surprise opposition to terms in June and brought Glencore within weeks of sealing its long-running pursuit of Xstrata.
Separately, sources told Reuters that Glencore offered to sell Xstrata's German smelter to try to win European Union approval for the takeover, in addition to its existing offer to scrap a key zinc sales deal.
Through a series of votes, Xstrata investors will be able to express their views on the management retention plan without endangering the merger.
Xstrata has said the retention plan was necessary to the success of the merger because it will ensure 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 criticised the pay plan, arguing that it is unnecessarily greedy.
"I expect the deal to be approved but there to be considerable dissent about the retention packages," one top 40 investor told Reuters.
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.
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.
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 Nov. 20, 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 1.7 percent to 963.7p at 1238 GMT on Thursday, moving closer to Glencore's offer, indicating that the market expects the deal to go ahead, while Glencore's shares traded down 0.54 percent.
EU competition regulators will give their verdict on the tie-up two days after the Xstrata shareholder vote.
The regulators have said that Glencore's offer to end an exclusive zinc sales deal and sell its minority stake in world No. 1 producer Nyrstar is not enough, two people familiar with the matter said on Thursday, prompting Glencore to offer to also divest an Xstrata smelter in Germany which produced 148,000 tonnes of zinc last year.
Antoine Colombani, spokesman for competition policy at the European Commission, would not comment on the matter.