Glencore, owner of 34 percent of Xstrata, last week increased its offer to 3.05 of its shares for each one in the target from 2.8 in February. Under the new proposal, Glencore Chief Executive Officer Ivan Glasenberg would be CEO in the merged group, reversing a plan for Xstrata’s Davis to hold the position.
That would entitle Davis, 54, to 5.3 million pounds ($8.5 million) in salary and bonuses and $4.3 million in retirement benefits, according to the mining company’s annual report. This compares with a retention bonus of 28.8 million pounds in shares over three years that he had originally been offered to lead the combined company and achieve cost-saving targets.
Davis would receive the $13 million payment because his contract entitles him to the benefits in case of termination of employment without notice or if he resigns in circumstances including a change of control, according to the report. He also has more than 2.5 million shares, worth about 25 million pounds, to vest in case of job termination. Chief Financial Officer Trevor Reid, who has the same contract, stands to get about 5 million pounds, according to the report. An Xstrata spokeswoman declined to comment.
Glencore made its one-page proposal of changes a couple of hours before Xstrata’s shareholders were due to vote its original bid on Sept. 7. Glencore’s revised bid came after Qatar Holding LLC, which holds 12 percent in Xstrata, had sought a higher price for its stake and said it would vote against the year’s biggest takeover. Glencore is due to make its detailed offer tomorrow, according to a person familiar with the situation.
The new proposal includes the option of changing the offer to a takeover from a so-called scheme of arrangement. That would reduce the level of acceptances needed to complete a deal to more than 50 percent, compared with 75 percent using a scheme of arrangement. Glencore is barred from voting its stake in the scheme of arrangement under U.K. takeover rules.
The revised bid, a premium of 17.6 percent, is “significantly lower than would be expected in a takeover,” Zug, Switzerland-based Xstrata said in a statement on Sept. 7.
The dramatic developments included an evening negotiating session in a London hotel mediated by former U.K. Prime Minister Tony Blair between Glasenberg and Qatar’s premier, said a person with knowledge of the deal.
“The intention to replace Mick Davis as CEO and to amend the management incentive arrangements represents significant risk around the retention of the Xstrata senior and operational management,” Xstrata said. The company will decide whether to reconvene shareholder meetings once it gets a “detailed proposal,” it said.
Glasenberg, 55, is Glencore’s largest shareholder with about 15.7 percent. The accountant turned coal trader had repeatedly rebuffed calls to raise his original offer, which was agreed on with Xstrata’s board even as Qatar continued to build its stake. As recently as Aug. 21, Glasenberg said he was ready to scrap the deal rather than overpay.
A combination would reunite two groups that separated a decade ago when Xstrata bought Glencore’s Australian and South African coal mines for $2.5 billion and went public in London.
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