Trader Glencore, weeks from a key shareholder vote on its bid for miner Xstrata, is set to stick to its $30-billion offer next week when it reports first-half profits dented by falling prices – dashing hopes of an improved offer for now.
Analysts and sources familiar with the deal say Glencore has little incentive to sweeten its bid to before disclosing the performance of its marketing arm and industrial operations.
The resources sector has had a torrid period with miners reporting their first profit falls since 2009.
Glencore's own first-half net profit (income before significant items) is expected to drop by more than a third to $1.6-billion, according to Thomson Reuters I/B/E/S, as lower prices, stubbornly high costs and power troubles in Congo hit. Lower income from 34-per cent owned Xstrata will also bite.
Its operating profit is expected to come in at $2.14-billion, according to those estimates and $2.4-billion according to a company-provided consensus, down from $3.3-billion.
"There is virtually no chance they will bump on Tuesday," said one source familiar with the company. "This is just how Glencore do their deals, they play the long game."
Glencore, the world's largest diversified commodities trader, said in February it would offer 2.8 new shares for every Xstrata share it did not already hold, hoping to create a mining and trading powerhouse.
It was surprised in June by an unexpected demand for better terms from Qatar Holding, which has built up a stake of almost 12 per cent in Xstrata. Qatar, which has been regularly buying shares on the market, is demanding an increased ratio of 3.25.
The structure of the merger, which requires 75 per cent acceptance from voting shareholders excluding Glencore, means just 16.5 per cent of Xstrata's total shareholding could halt the deal – effectively handing Qatar a blocking minority.
Instead, the sources say, the trader is likely to address Xstrata's institutional and other investors during meetings after Tuesday's earnings, and then make a final decision.
Glencore and Qatar have been negotiating for almost two months, but sources familiar with the deal say there is little sign of either side blinking yet.
Talks are expected to resume in earnest after the end of Ramadan this weekend and Glencore earnings, as the countdown begins to shareholder votes on Sept. 7.
Several of the sources said it was also unclear that Glencore would make its decision by Friday – the date by which it would normally be expected, under UK rules, to either alter the terms or face the prospect of delaying the shareholder vote.
"They are relaxed about it," another of the sources said.
Glencore's Congolese copper unit Katanga has already published details of a second-quarter loss and power woes, but analysts said they would be looking for more detail on the operation, and for an update on the impact of strikes at Colombian coal subsidiary Prodeco.
Its marketing arm, which Glencore said at its first-quarter update only that it was "trading robustly", is also likely to be in the spotlight.