Bloomberg News

Xstrata Holders Reject Glencore Option Linked to Bonuses

November 20, 2012

Xstrata Holders Reject Glencore Option Linked to Bonus Payments

An aerial view shows the copper, silver, lead and zinc mining and smelting operations at Xstrata Plc's Mt. Isa mine, in Queensland. Photographer: Jack Atley/Bloomberg

Xstrata Plc (XTA) shareholders rejected a resolution to approve Glencore International Plc’s 19.5 billion- pound ($31 billion) takeover that includes a package of retention bonuses. Xstrata is still to announce the result of a second vote that excludes the payments.

Xstrata shareholders polled at a meeting in Zug, Switzerland today voted 67.85 percent in favor of the first resolution, falling short of the required 75 percent threshold, the company said in a filing. Investors in commodities trader Glencore, which already owns 34 percent of Xstrata, voted 99.4 percent in favor of the takeover earlier today.

Glencore sweetened its all-stock offer in September to 3.05 shares for each one in Xstrata to win support from Qatar’s sovereign wealth fund, holder of a 12 percent stake in the world’s largest exporter of power-station coal. There’s a 90 percent chance the acquisition will be approved, according to SBG Securities Ltd.

Xstrata pared gains in London trading after the result of the first vote to be 0.5 percent higher at 961.9 pence at 2:19 p.m. Glencore was 0.7 percent higher at 328.9 after gaining as much as 2.4 percent. The combined group would be the world’s fourth-largest mining company. It would represent about 2.1 percent of the U.K.’s benchmark FTSE 100 Index, ranking it 13th in the gauge, Liberum Capital Ltd. wrote today in a note.

The offer, increased in September from 2.8 Glencore shares, is opposed by some Xstrata investors including Knight Vinke Asset Management LLC. Shareholder advisory groups are also divided. Pensions & Investment Research Consultants Ltd. recommended opposing the deal. Institutional Shareholder Services Inc. and Glass Lewis urged investors to support it, while calling for the bonuses to be rejected.

Voted Against

Knight Vinke voted against all resolutions, David Trenchard, vice chairman at the fund, told Xstrata’s board and shareholders in today’s meeting in Zug.

“We, as major shareholders in Xstrata, have no confidence in the independence and robustness of the current Xstrata board,” Trenchard said. “We are extremely concerned with regard to the ability of the board of the newly merged company to represent our interests. Good governance must now take centre stage and we intend to broaden our discussions with fellow shareholders to ensure that this is the case.”

Qatar Holding LLC, Xstrata’s second-largest shareholder, said last week it will vote in favor of both resolutions on Glencore (GLEN)’s offer. The first resolution backed the deal along with 144 million pounds of retention bonuses for about 70 Xstrata employees. The second supports the acquisition without the incentives. Both need 75 percent support to be passed.

Qatar Abstains

Qatar plans to abstain from the third resolution that focuses solely on the payments for Xstrata managers. That boosts the likelihood of both the deal completing and the payouts being blocked, given opposition from other shareholders, Liberum Capital Ltd. said Nov. 15.

If the incentives are rejected in a vote that requires a simple majority, there’s a great risk of key Xstrata managers leaving the combined company, Macquarie Group Ltd. said in a note to clients last week.

Investors holding as little as 16.48 percent of Xstrata can block the transaction because U.K. takeover rules prevent Baar, Switzerland-based Glencore from voting its 34 percent stake in Xstrata.

Zinc, Copper

The takeover will add Xstrata’s coal, nickel, zinc and copper operations to Glencore’s cotton-to-crude-oil commodities trading empire. The combined entity will have interests in about 35 coal mines in Colombia, Africa and Australia, and account for about 10 percent of global seaborne exports of the fuel.

It would be the world’s third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of coal burned by power stations. The combined group also would have about 11 percent of the 13 million-ton global zinc market and about 40 percent of the 1.9 million tons of the metal produced in Europe.

Completion of the deal is still subject to approvals from regulators including the European Commission, which has until Nov. 22 to rule. The regulator will likely focus on the combined company’s influence in the zinc market, SBG’s Davey said.

The two companies have said they expect the transaction to be closed by the end of the year. Glencore shareholders today approved changing the company’s name to Glencore Xstrata International Plc.

Qatar Holding is advised by Lazard & Co. Glencore is working with Citigroup Inc. and Morgan Stanley as financial advisers. Xstrata has hired Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc.

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Firat Kayakiran in London at fkayakiran@bloomberg.net; Leigh Baldwin in Zurich at lbaldwin3@bloomberg.net

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


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