Xstrata is preparing to recommend the latest merger offer from Glencore on Monday, with the miner over the weekend hammering out a novel structure that is designed to help maximise support from its investors.
The company was on Saturday still finalising its proposal in response to feedback from shareholders that would allow different groups of investors to support the deal through different routes, even if they differ over the merits of the a multimillion pounds payout package designed to retain Xstrata’s most senior executives.
Shareholder voting will be structured so that Xstrata would still be recommending a merger that includes the payout arrangements it believes it needs to retain key management and staff.
The original £173m proposed payouts provoked investor anger when they were announced in May. But after Ivan Glasenberg, Glencore’s chief executive, earlier this month announced a revised merger offer that will put him at the helm of the combined company, some investors said retaining Xstrata’s top managers was crucial to the success of the deal. Others have remained opposedto the payouts on principle.
Xstrata is still working the details of the structure and one person familiar with the talks warned about the potential of last-minute changes.
The voting plan under discussion would allow the miner’s shareholders to express several different opinions: voting down the merger completely; voting for the merger and the retention packages; approving the merger but oppose the retention package, and crucially an option where shareholders can vote to approve the merger irrespective of whether the retention package is approved or not. The final option would allow shareholders to vote in favour of the merger without breaking previous commitments against payouts.
The plan would pave the wave to way to a $80bn merger linking a major miner of thermal coal, zinc and copper with the world’s largest commodities trader. The combination is the largest M&A deal so far this year.
The new structure would allow Xstrata to reconcile the demands of some of its shareholders, including BlackRock and Legal & General, who oppose the packages, with the desires of a larger group of shareholders – including Qatar Holding, the second-largest investor in the miner with a 12 per cent stake – that want the retention packages in place.
The UK Takeover Panel has given Xstrata’s board until Monday, October 1, at 7am London time, to make a recommendation.
The deal, first announced in February, has suffered multiple delays. Earlier this month, Mr Glasenberg made a last-ditch attempt to save the merger after Qatar Holding opposed the deal, by increasing the offer from 2.8 shares to 3.05 shares but asking that he become chief executive of the combined group.
Xstrata’s board is expected to keep the substance of the retention arrangements set out in May, adjusting only for Mr Davis’s departure. Payments would be made to about 70 of the miner’s senior staff totalling about £140m, people familiar with the matter said.
The performance hurdles would be similar to those introduced earlier this year, after shareholder outcry forced Xstrata’s board to tweak its proposals. Under the new proposals, Mr Davis’s previously promised £29m package would no longer form part of the scheme, nor would other executives’ payments accelerate on his departure, as had been intended.
Glencore and Xstrata declined to comment.