The mining mega-merger between Glencore (GLEN) and Xstrata (XTA) is edging closer to reality after Xstrata’s independent directors recommended the improved terms being offered to investors and also tried to find a solution to investors’ complaints about executive pay.
Shareholders of Xstrata will now vote twice, once on whether to accept the increased offer of 3.05 Glencore shares for each Xstrata share and separately on an executive retention package for around 70 Xstrata managers worth £173m which has angered some investors with its generosity.
One man who has been removed from the retention package equation is Xstrata chief executive Mick Davis who will take over the combined group for six months before stepping aside for Glencore's Ivan Glasenberg. Mr Davis will only receive the compensation due in his existing pay package. But other senior Xstrata executives still stand to benefit handsomely from the retention package which, the company says, was designed to allay investor fears that the merger could result in a brain drain of key Xstrata managers leaving.
The merger will be effected via a scheme of arrangement which requires 75 per cent of shareholders to vote in favour. Passing the merger is now not reliant on the management incentive package being passed, which gives scope for a significant protest vote.
Xstrata shareholders have been vocal throughout the whole merger process, especially on the merger ratio and management incentives. In particular, Qatar Holdings’ opposition helped to scupper the original low ball offer of 2.8 shares, saying it wanted 3.25 shares. It has not yet reacted to the recommendation but smaller shareholder Threadneedle Investments has railed against the revised offer saying it is ‘firmly opposed to this so-called merger of equals’.
It remains to be seen whether enough other shareholders back Threadneedle’s view or whether 3.05 shares is just about enough. Splitting the shareholder vote also allows investors to vent their spleen on pay yet still wave the deal through.
