Xstrata Plc (XTA) is set to recommend shareholders vote in favor of a 20.5 billion-pound ($33 billion) sweetened takeover offer by Glencore (GLEN) International Plc after revising the voting structure and winning assurances it will have a majority of the board.
Xstrata, the largest exporter of coal used by power stations, will make changes to secure the loyalty of top managers and balance investor demands, in order to create the world’s fourth-largest mining company, according to a person familiar with the deal, who asked not to be identified as the talks are private.
Glencore earlier this month raised its offer to 3.05 of its shares for each one in Xstrata from 2.8, after investors said the original bid undervalued the Swiss mining company. The Baar, Switzerland-based commodities trader invited Xstrata to propose changes to the bonus package to ensure shareholder backing for the year’s biggest takeover.
The retention payments total 144 million pounds, excluding the 28.8 million pound-bonus for Xstrata Chief Executive Officer Mick Davis, who will not qualify to receive it, according to the person close to the deal. Davis will receive a contractual termination fee of about $13 million when he leaves, the person said.
The person wouldn’t elaborate on the changes to the offer before an official announcement, due tomorrow. The revised bid stipulates that Davis lead the merged company before handing over to Glencore counterpart Ivan Glasenberg within six months.
Spokesmen from Xstrata and Glencore declined to comment late yesterday.
According to Glencore’s original bid on Feb. 7, Xstrata shareholders are required to cast their votes on the merger and on the corporate governance structure, which includes the retention bonuses. The merger plan requires 75 percent approval of the shareholders, while the retention package can be passed with 50 percent in favor. Both votes must pass for the deal to proceed, according to the original offer.
Investors, including Blackrock Inc. (BLK:US), have asked the Xstrata directors to name the executives who would receive the bonuses and justify the payment to each individual, or make the vote unconditional for the deal, while some major shareholders are threatening to vote against the merger if the vote to retain the key managers doesn’t remain conditional, according to the person close to the deal and another person familiar with the talks, who also declined to be named.
Xstrata has also received assurances from Glencore that one of its executives will replace Davis on the combined board, the first person close to the deal said. Xstrata will hold six seats on the 11-member board.
The talks, which were extended last week, are one of the final stages in an almost eight-month effort by Glencore to seal the deal.
The sweetened bid followed a threat by Qatar’s sovereign wealth fund, Xstrata’s largest holder after Glencore, to block the deal in the absence of a higher offer. Qatar Holding LLC said in June that a bid of 3.25 shares would be “more appropriate.” As little as 16.5 percent of investors can prevent the merger because Glencore can’t vote with its 34 percent stake.
The combination of the two commodity companies, five years in the making, would couple Glencore’s global trading operations with Xstrata’s coal, copper, and zinc mines.
A successful acquisition by Glencore at current share prices would be the second-largest in the mining industry, behind Rio Tinto Group’s $38 billion purchase of Canada’s Alcan Inc. in 2007. The volume of announced takeovers of mining companies rose to $80.2 billion last year, the highest since 2008, according to data compiled by Bloomberg, as commodity demand in developing nations and the deteriorating quality of mineral reserves pushed producers to seek greater economies of scale.
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