Saturday, Sep 22, 2012


 
   By Dana Cimilluca

Xstrata PLC (XTA.LN) extended a deadline for its board to decide whether to endorse Glencore International PLC's (0805.HK, GLEN.LN, GLNCY) $36 billion proposal to merge the natural-resource companies, the latest in a string of setbacks for a deal the two Anglo-Swiss companies have been struggling for seven months to consummate.

The deadline has been extended from Monday to a week later, Xstrata said. Xstrata's board is still inclined to support the deal, people familiar with the matter said, an endorsement seen as crucial for it to go forward.

But the board still has work to do to sew up the support of the company's big shareholders, one of the people said, and any such accommodations need to be weighed against demands from Glencore. Among the issues that are still outstanding is the balance of power on the combined company's board, the people said.

It is ultimately unclear whether the outstanding issues, which seems to involve substantive matters, could put the deal at risk of collapsing. The market appeared to take notice, with shares of Xstrata, a big miner of coal, copper and other commodities, falling 4.2% to 1,005 pence in London. Glencore shares meanwhile, fell 1.7% to 362 pence. That puts the closely watched ratio of Xstrata's share price to Glencore's at 2.78 times, down from 2.85 Thursday.

Generally speaking, the lower the ratio, the lower the perceived odds in the market that the deal will go through.

Some of that decline--but likely not all--could be explained by a reweighting of Xstrata in the FTSE100 index Friday, which was expected to cause index funds to sell its stock.

Whatever the meaning of the delay, it is the latest twist in a deal that has faced more than its share of stumbling blocks since it was announced in February. The deal was on the verge of collapse two weeks ago after shareholders including Qatar Holding LLC, Xstrata's second-largest, said they would vote against it. Glencore, the world's biggest commodities trader, attempted to salvage it with a new offer that boosted the price to 3.05 of its shares for each Xstrata share from 2.8. But it also shook up the planned governance by proposing that its own chief executive, Ivan Glasenberg, run the combined company following a six-month interim CEO stint for Xstrata CEO Mick Davis.

It appears that change is largely responsible for the latest hitch.

The deal originally called for Xstrata to get six seats on the combined company's board, and Glencore five. With Mr. Davis expected to exit the board after he steps down as CEO, there are questions around who would replace him as a director. Should his replacement be a Glencore loyalist, that would tip the balance of the board's power.

The delay was a surprising turn in the saga of a proposed deal that would form a mining and trading behemoth with a market value of some $70 billion. As recently as Thursday, people close to the deal expressed confidence it would get done by Monday's deadline, though they warned last-minute snags were still a possibility.

--Alex MacDonald contributed to this article.

Write to Dana Cimilluca at Dana.Cimilluca@wsj.com

(END) Dow Jones Newswires

22-09-12 0730GMT