Xstrata Plc (XTA) Chief Executive Officer Mick Davis has encouraged Glencore International Plc (GLEN) and Qatar’s sovereign-wealth fund to work out their differences ahead of a shareholder vote on this year’s largest takeover, according to people familiar with the situation.
Davis, who stands to get as much as 28.8 million pounds ($46 million) in performance-related bonuses should the deal succeed, has been in contact with Qatar Holding LLC and commodity trader Glencore about a resolution ahead of today’s vote by shareholders in Switzerland, said the people, who declined to be identified as the discussions are private. Davis isn’t actively involved in any negotiations between Glencore and the Qatari fund, two people said.
Qatar Holding, controlled by the Persian Gulf state’s royal family and the owner of 12 percent of Xstrata, has said it will block the 21.5 billion-pound deal that would create the world’s fourth-largest mining company. The fund is calling for the proposed exchange ratio of 2.8 Glencore shares for each Xstrata share to be raised to 3.25. Glencore CEO Ivan Glasenberg has said he doesn’t understand the fund’s position and has rejected calls from Qatar and other investors to raise the bid.
Xstrata investors are due to meet at 10 a.m. London time at the Theatre-Casino in Zug, Switzerland, where the company is based. A 75 percent acceptance level is needed for the takeover to proceed. Glencore shareholders, about 80 percent of whom are company employees, are set to vote two hours earlier at the same venue.
“Investors should not underestimate Glencore’s ability to engineer a bump in the agreed ratio to three shares or the possibility of a last-minute deal with Qatar,” Alain William, a Paris-based analyst at Societe Generale SA, said in a note.
Davis isn’t negotiating actively on anyone’s behalf, according to the people. Glasenberg, Glencore’s largest shareholder with a stake of about 16 percent, will make the final decision on whether to raise the bid and will rely less on advisers as the deal nears a conclusion, a person familiar with the matter said last week.
Charles Watenphul, a spokesman for Baar, Switzerland-based Glencore, declined to comment. A spokesman for Xstrata and an official who speaks for the Qatari fund also declined to comment.
Xstrata gained 4.7 percent to 979 pence in London yesterday, 2.5 times Glencore’s closing price of 392.4 pence.
Votes from as little as 16.48 percent of Xstrata’s shares would be sufficient to block the deal because Glencore can’t vote its 34 percent stake under the terms of the deal, which was announced in February.
The shareholder meetings were originally planned for July 11 and July 12. They were rescheduled after Qatar said June 26 it wanted a higher offer, and following Xstrata’s alteration of the terms of a proposed compensation package for its executives.
Xstrata moved on the pay issue to defuse objections from some investors to the 172.8 million pounds of retention payments proposed for 73 of its executives. The payments were converted to shares instead of cash and the terms were also changed, linking some of the bonuses to performance. The payments include 28.8 million pounds of shares to be paid to Davis over three years.
Qatar Holding has spent about $5 billion buying shares since the bid was announced to become the biggest shareholder in Xstrata after Glencore, filings show.
The fund said last week that while it didn’t object to the principle of the deal, it wouldn’t support it based on the current terms. Xstrata stockholders Schroders Plc and Standard Life Investments have also said they will vote against the bid. Glasenberg said Aug. 21 he was ready to move on from the deal rather than overpay.
Davis, 54, stands to become CEO of the enlarged company, while Glasenberg, 55 and Glencore’s largest shareholder with a stake of about 16 percent, would become deputy CEO.
Should the current proposal fail, Glencore executives are considering a structure for a new offer that would be more difficult to block, a person with knowledge of the matter said this week. It may seek an offer structured as a more conventional takeover, the person said. That would reduce the level of acceptances needed to complete a deal to more than 50 percent, compared with 75 percent using the current so-called scheme of arrangement.
Xstrata is being advised by Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc. Glencore, which has agreed to pay Xstrata a so-called break fee of 298 million pounds should it withdraw the offer, has tapped Citigroup Inc. and Morgan Stanley. Qatar Holding has been advised by Lazard Ltd.