The commodities trading giant Glencore will be forced to hand over nearly £300m to the FTSE 100 miner Xstrata, should it walk away from the £50bn merger as a result of shareholder pressure.
Advisers on both sides of the deal are also expected to lose well over £100m in fees, if Glencore boss Ivan Glasenberg decides to abandon the merger rather than sweeten its terms.
Mr Glasenberg has been determined to reunite the two companies for years, Glencore having spun off Xstrata as a collection of coal assets back in 2001. It still retains a one-third stake in the Switzerland-based group.
Last week Qatar Holdings became the latest and – with an 11 per cent shareholding – the most significant Xstrata investor to demand a premium on a deal that has been marketed as a "merger of equals".
Qatar is demanding 3.25 shares in the combined group for every one that Xstrata investors already hold, against the current offer of 2.8. Many Xstrata investors believe that such improvements are necessary as their company's prospects are arguably better.
After early talks between Glencore and Qatar over the impasse failed last week, there is a growing sense that a compromise might not be reached. Other significant shareholders, who are also angry that Xstrata's chief executive, Mick Davis, will receive a £28.8m retention bonus for just staying on as boss of the merged group for three years, are likely to join forces with Xstrata and vote down the proposal.
Mr Glasenberg has indicated he could walk away from the deal if shareholders show a lack of interest in paying for world-class executives while he is not likely to pay anywhere near as much as Qatar is demanding.
The terms of the merger prospectus state: "Glencore has agreed to pay Xstrata by way of compensation a fee in the amount of £298m … payable in the event that the Glencore board withdraws, amends, modifies or qualifies its recommendation of the merger or resolves or agrees to do the same so as to cause the merger not to proceed."
A source close to the negotiations said that he was still hopeful that a deal could be struck. He argued: "Glencore initiated the discussions with Xstrata, that was one of the main rationales of listing on the London Stock Exchange – to create a currency [shares] to do this merger. It's still in Glencore's best interests to get this deal done now."
Certainly, some of the world's biggest investment banks, such as Goldman Sachs, Citi, Morgan Stanley and Deutsche, are hoping the megamerger goes deal. Alongside public relations firms and lawyers on the deal, they are due to share a pot of around £125m should the deal succeed, but only about 10 per cent of that should it fail.