Zug, Switzerland — 25 September 2012 – The boards of Xstrata and Glencore are scrambling to agree the terms of a £56 billion tie-up in the latest episode of the protracted merger talks between the mining giant and the global commodities trading house.
With the clock ticking on the deadline set by the Takeover Panel for an announcement by Monday, the Xstrata board is trying to decide whether to recommend the terms of the proposal by Glencore – possibly as soon as Friday, reports “The Guardian”. If agreed, the deal would create a business that would be at the centre of the global trade in vital commodities such as wheat and sugar.
If it is to succeed, much will hinge on the support of the Qatari investment fund that owns more than 12% of Xstrata, and which scuppered the first attempt at a deal by arguing that the price being paid by Glencore was too low. That led to a dramatic revision of the terms a fortnight ago when Glencore raised its offer and altered the proposed management structure of the enlarged company.
Instead of being run by Xstrata’s chief executive Mick Davis – who at one stage stood to receive £30 million in retention payments to keep him for three years – the company would be led by Glencore CEO Ivan Glasenberg after six months.
The management changes are thought to have been a concern for the investment fund of the gas-rich Gulf state of Qatar, which had demanded 3.25 Glencore shares for each Xstrata share it owned. The original offer, made in February, was for 2.85 shares, although this was raised to 3.05 shares this month – minutes before the two companies were due to hold shareholder meetings to vote on the tie-up.
Also to be settled are any new retention packages for top Xstrata staff, who under the initial terms stood to share in share awards of more than £240 million. Glencore has asked the Xstrata board to consider what changes are needed. The generosity had threatened a rebellion by city investors, who were being asked to vote separately on the payments to more than 70 staff.
Xstrata has argued that the retention packages are needed because 80% of the combined group’s income will come from the mining company in which Glencore already owns a 34% stake.
When hitherto-secretive Glencore floated in London last year it was widely seen as the first step towards making a bid for Xstrata, as well as a way of enriching its 485 partners.
The retention packages would still need the approval of Xstrata shareholders. The merger is currently structured as a scheme of arrangement, which requires approval from 75% of investors, though it can be turned into takeover – requiring 50% approval – if Xstrata and the Takeover Panel agree.
Source: “The Guardian”. For more information, click here.