A group of arbitrage hedge funds is betting that Glencore will either agree its £53bn mega-merger with Xstrata (Dusseldorf: XTR.DU - news) or walk away, putting them directly opposed to long-only investors looking for an increased premium.
Funds including Pine River Capital Management, Arrowgrass Capital Partners and Och-Ziff have taken a series of complex positions in both Glencore and Xstrata.
But the moves are at odds with a number of Xstrata's blue-chip shareholders led by Schroders (Berlin: PYX.BE - news) and Standard Life (Other OTC: SLFPF.PK - news) which have publicly dismissed the current premium, which will see one Xstrata share valued at 2.8 Glencore shares.
Current positions from arbitrage investors indicate a premium of 2.6 Glencore shares, suggesting the deal will not happen. If that is the case, they would stand to profit handsomely.
Regulatory filings show that Arrowgrass has a 0.06pc in Glencore's shares, but a 2.63pc stake in its debt. At the same time, Arrowgrass has a 0.05pc stake in Xstrata, and a series of derivatives in place betting the value of Xstrata's shares will increase.
Och-Ziff has a 0.059pc stake in Xstrata and a long derivative bet on its shares. But the New York (Frankfurt: A0DKRK - news) -based hedge fund was one of the cornerstone investors in Glencore's $10bn initial public offering last May, and controls 0.08pc of its shares as well as 2.978pc of its debt.
Pine River meanwhile has built a 0.07pc position in Glencore's shares while also buildings its position in the company's listed bond issue, of which it owns 1.74pc.
Data Explorers research shows that around 3.4pc of Glencore shares are out on loan a proxy for short selling representing three quarters of the stock that can be borrowed given the company's limited free float.
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