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Global commodities giants Xstrata plc (LSE:XTA) and Glencore International plc (LSE:GLEN) have agreed on new terms of the management incentive arrangements in relation to the multi-billion pound merger of the two London-listed companies, in an effort to appease angry investors over pay packages of the top executives days before their shareholders decide on the fate of the proposal.
Updating the market in the afternoon today, Xstrata said that the retention awards for the executives of the combined group shall now be in the form of shares rather than cash and will be subject to “the realisation of additional cost savings arising from the Merger”.
Speaking on behalf of the Xstrata’s Board, Sir John Bond, the Swiss-born company’s Non-Executive Chairman, said the amendments are a result of “extensive consultation with major shareholders” of the company.
While the original terms of the management retention arrangements were the “most secure means of retaining managers in a highly competitive global mining labour market”, Sir Bond stated the revisions reflect the sensitivity of Xstrata’s executive management and independent non-executive directors “to the perspective and concerns of our shareholders in the current environment”.
“We have listened to the feedback we have received since publishing the merger documents. These amendments now allow shareholders to focus on the strategic rationale for the Merger.”
The new terms now stipulate that full vesting of retention awards to Xstrata’s management, excluding Executive Directors and Independent Non-Executive Directors, will only happen if a minimum US$300 million of incremental cost savings arising from the merger will be achieved within the next two years after completion, on top of the US$50 million earlier identified and stated in the offer document.
Assault on Price Terms
While the new terms may have touched the issue on compensation, a late announcement by Xstrata’s second biggest shareholder, Qatar Holdings, issued on Tuesday, 26th June 2012, shocked stakeholders, causing Glencore International’s Chief Executive Officer Ivan Glasenberg to be in “frantic talks” with advisers in response to the latest development.
In a short statement released earlier today, Qatar Holdings noted that “whilst it sees merit in a combination of the two companies, it is seeking improved merger terms”.
“QH believes that an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata,” Qatar Holdings stated.
Qatar Holdings was “widely thought” to support the merger as the company with 10.4% interest in Xstrata was silent of its stand until now in a deal that has been openly criticised by other major investors, including Standard Life, Schroders, and Fidelity.
Only 16% of the shares is needed to thwart the creation of the fourth largest mining group in the world, which will need 75% vote during Xstrata’s shareholder meeting, with Glencore’s already 34% stake excluded.
Following this development, Glencore announced it will seek an adjournment of its shareholders’ meeting previously set on 11th July “to align it with Xstrata’s shareholder meetings and to take into account any changes required to be made to the Merger documentation in connection with those amendments”.
Company Spotlight
Xstrata plc is a major mining and metals company producing ferrochrome, vanadium, coal, copper, nickel, cobalt, and zinc operating from 20 countries around the world.
Glencore International plc is one of the leading commodities providers in the world, operating over 30 countries.
At the close of trading in London today, Xstrata shares were up 1.4% to 796.60 pence while Glencore International stocks fell by the same percentage to 298.30 pence, giving a ratio of 1 Xstrata shares for every 2.67 of Glencore International’s.
