Bloomberg News

Glencore-Xstrata Merger ‘Almost a Done Deal,’ Standard Life Says

November 12, 2012

Glencore International Plc (GLEN)’s revised $32 billion takeover bid for Xstrata Plc (XTA) will probably be approved by investors while retention payments to about 70 managers may be rejected, Standard Life Investments said.

“It’s almost a done deal,” David Cumming, head of equities at Standard Life, told the British Broadcasting Corp. on Radio 4’s Today program, according to e-mailed interview extracts sent by the insurer. Standard Life owns a 1.44 percent stake in Xstrata, according to data compiled by Bloomberg.

Shareholders are scheduled to vote Nov. 20 on plans to create the world’s fourth-largest mining company. In the first meeting of the day investors will be asked to consider two resolutions, one to approve the takeover along with 144 million pounds ($229 million) of retention bonuses for about 70 Xstrata employees, and a second that excludes the pay question.

Glencore raised the bid Sept. 7 to 3.05 of its shares for each one in Xstrata from 2.8 shares offered in February. That followed demands from investors including 12 percent Xstrata shareholder Qatar Holding LLC for more. Standard Life will vote for the deal without the retention payment, Cumming said.

Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani on Oct. 15 said the Gulf state looked favorably on Glencore’s sweetened bid for Xstrata. “We’re looking in favor of doing something between the two companies,” Sheikh Hamad told reporters in Doha, asked whether Qatar supported the offer.

Qataris Supportive

“The fact the Qataris are supportive of the deal suggests that the deal will go through,” Cumming said. “I do think that incentive package should be voted down, I think it’s unnecessary and, to be honest, I think it’s a combination of a rather rapacious management team and a weak board, and we will be voting against it but you can vote against it and the deal still will go through and I think it will go through.”

Xstrata declined to comment on Standard Life’s comments.

As few as 16.48 percent of shareholders can block the deal because U.K. takeover rules prevent Baar, Switzerland-based Glencore from voting its 34 percent stake in Xstrata, the world’s largest thermal coal exporter. The deal must be backed by a vote of 75 percent to be approved.

Xstrata’s board on Oct. 1 recommended shareholders back the revised deal and vote for the packages to retain the managers responsible for the industrial assets that will account for about 80 percent of the combined company’s earnings.

Xstrata also placed advertisements in weekend newspapers, repeating its recommendation and informing its investors that they may vote by proxy by Nov. 16 or in person on Nov. 20.

Unusual Advertising

“It is unusual to see companies advertising for shareholders to vote,” Cumming said. “But I think the Xstrata management are a bit worried about their incentive package being voted down and there are scenarios where that could scupper the deal.”

Apart from the two resolutions in the court meeting on Nov. 20, Xstrata shareholders will also be asked to vote for two more resolutions in the extraordinary general meeting to be held about half an hour later. The first vote will be to empower the Xstrata board to complete the deal and the second to approve the retention package in a stand-alone vote, requiring 50 percent support.

The outcome of the retention payment vote will define which of the first two resolutions will be acted upon.

If the vote is yes, the result of the resolution for the deal with the retention package will be used and if the vote is no, the result of the resolution for the transaction without the bonus package will govern the outcome of the whole deal.

Scottish Widows

Scottish Widows Investment Partnership, owner of about 1.1 percent in Xstrata, on Nov. 9 said it supports the deal and the retention payments. “SWIP is supportive of the merger and the revised incentive arrangements,” Anne Fraser, head of corporate governance, said in an e-mailed statement. “The merger will bring together two different but complementary businesses.”

The offer by Glencore, the largest publicly traded commodities supplier, to take over Zug, Switzerland-based Xstrata’s copper, coal and zinc mines has also divided shareholder advisory groups.

Pensions & Investment Research Consultants Ltd. recommended shareholders oppose the deal because of a lack of due diligence and board independence at Xstrata. While Institutional Shareholder Services Inc. and Glass Lewis encouraged investors to support the takeover, they called for the resolution on retention bonuses to be voted down.

The Association of British Insurers lowered its concern rating for the deal to amber from the “red top” it gave it in June that highlighted a breach of best practices.

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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