Glencore, Xstrata Shareholders Approve Merger

PUBLISHED: Nov 20 2012 @ 12:34 | Comments (0) | More info about Kenneth G. Mondero

After nine months of intense negotiations and 11^th hour calls, shareholders of Anglo-Swiss commodities and mining giants, Glencore plc (LSE:GLEN) and Xstrata plc (LSE:XTA), have finally approved the “merger of equals” to create a global natural resources powerhouse.

However, Xstrata shareholders rejected the £88 million Revised Management Incentive Arrangements, which would have provided retention packages to some 70 Xstrata managers after the merger is completed – a scheme fully supported by Xstrata’s independent directors.

Earlier on, the Xstrata’s independent directors had stated the MIA is one of the essential elements of the merger, along with the exchange ratio and governance structure.

These three considerations had been the subjects of negotiations between Glencore and Xstrata as well as amongst each firm’s stakeholders that had caused delays in the approval of the merger.

Glencore first offered 2.8 of its shares for every one of Xstrata’s and was met with much resistance from Xstrata’s major shareholders, resulting in a revised offer of 3.05 Glencore shares for one Xstrata stock.

Qatar Holding LLC, 12% owner of Xstrata and last-minute game-changer of the deal, announced last 15^th November, it was to abstain from voting whether to approve or reject the MIA, saying it is not appropriate for the firm to “influence the outcome either way”, in conscious sensitivity of governance issues in the UK, despite the fact that the sovereign wealth fund openly deemed “of critical importance” the retention of Xstrata’s operational management.

At Risk

Rejecting the MIA, according to Xstrata’s independent directors back on 1^st October, puts the £44 billion soon-to-be combined entity at risk as the possibility of losing key managers may pose a threat to the delivery of over 20 projects as well as the stability of about 150 mining and metallurgical operations.

Mick Davis, current CEO of Xstrata, is to head the combined entity for six months, after which he will resign from the Board and will be replaced by Ivan Glasenberg, Glencore’s current Chief Executive and biggest shareholder.

The merger, first announced on 7^th February 2012, still needs the stamp of the European Commission and China’s regulatory body to finally complete the deal.

Shares of both Glencore and Xstrata closed 1.6% and 3.1% to 331.75 pence and 986.60 pence, respectively – giving a ratio of 2.97.

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