Glencore hopes for FTSE fillip to aid Xstrata deal
LONDON (Reuters) - Glencore's (GLEN.L) bruised stock could get a boost after a lock-up on a large slice of employees' shares expires, in a welcome lift for the commodities trader as its $30 billion bid for miner Xstrata XTA.L nears the final stages.
The release on Thursday of 2.7 billion shares - a year after Glencore's record stock market debut - could mean a technical "squeeze" on the stock, analysts said. The increase in shares available to be traded translates into a greater weighting in the FTSE 100 index .FTSE, prompting index-tracking funds to buy more shares.
With Glencore's roughly 500 employee shareholders mostly expected to hang on to their stock, that could be a boon for Glencore, preparing to send investors the details of its all-share offer for Xstrata, in which it is already the top investor.
Glencore, the world's largest diversified commodities trader, is expected to send documents to shareholders by the end of May, with a vote on the deal to follow weeks later.
"The consensus view is that (Glencore Chief Executive Ivan Glasenberg) knows his shares may rally in the middle of next month, then there is the vote probably in July," one hedge fund adviser said. "These things are not coincidental."
The adviser added a recent drop in commodities and mining stocks on fresh worries over Chinese growth and the impact of Greek political turmoil - the UK mining index .FTNMX1770 is down almost 16 percent so far this month - would also help Glencore justify its current offer of 2.8 new shares for every Xstrata XTA.L share held.
"The timing of this offer around the index event is no coincidence, Glencore and its advisers planned this in the hope that the market will do most of their work to sell the deal - i.e. push Glencore up," another hedge fund adviser said.
Glencore's free-float will go from less than 20 percent to over 50 percent from Thursday. That will mean a FTSE weighting which could be as much six times the level when it listed, according to analysts' estimates.
The FTSE 100's next reshuffle is set for June 6, meaning weighting changes will be effective from the close on June 15. The rival MSCI index reshuffle is effective in September.
Glasenberg, Switzerland-based Glencore's top investor with a stake of almost 16 percent, does not count towards the free-float, even if some of his shares are now free to be sold. But he has set the tone, saying he would not sell while he remains at the group.
Glencore's traders are expected to follow suit, not least because of Swiss fiscal structures that encourage employees to hold the shares for at least five years or face hefty taxes on their gains. Glencore's stock is also down roughly a third since May last year.
NAYSAYERS SELL DOWN
The extent of any eventual boost to Glencore shares is up for debate. Funds have, after all, already been able to buy in ahead of the change.
"Index funds will buy, but they've been buying in anticipation," one Glencore shareholder said.
But analysts and industry advisers agree that any lift, combined with the drop in the broader sector, will make it easier for Glencore to secure the deal without improving its 2.8 exchange ratio.
Xstrata shares are trading below the 2.8 ratio level, despite buying from Qatar, now its second-largest shareholder with a stake of almost 9 percent, indicating investors are no longer pricing in a boost.
The structure of the deal, which requires 75 percent of shareholders excluding Glencore to approve it, means minority investors in Xstrata are crucial. Opposition from investors amounting to just 16.5 percent of the total could sink the deal, while several high-profile shareholders have said the offer undervalued Xstrata's growth.
But two of the deal's highest profile naysayers, Standard Life and Schroders, have also been selling down their stakes, according to regulatory filings.
(Additional reporting by Tommy Wilkes; Editing by Erica Billingham)
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