Xstrata Plc (XTA) Chief Executive Officer Mick Davis is ready to quit the company after a $36 billion takeover by Glencore International Plc (GLEN) at a price beneficial to shareholders, a person familiar with the situation said.
Chief Financial Officer Trevor Reid also is prepared to step down provided Glencore makes an offer fair to shareholders of the mining company, said the person, who asked not to be identified because the information isn’t public.
Glencore, the owner of 34 percent of Xstrata, last week raised the amount of stock offered for the rest of the company by 9 percent, demanding that its CEO Ivan Glasenberg replace Davis minutes before shareholders were due to vote on what would be this year’s biggest merger.
“Mick Davis has engendered a lot of goodwill for Xstrata investors and there would be a strong reaction should he leave the merged group,” said Tim Schroeders, who holds Xstrata shares as part of about $1 billion he helps manage at Pengana Capital Ltd. in Melbourne.
Glencore, based in Baar, Switzerland, two miles away from Xstrata in Zug, may propose the target’s John Bond becomes chairman of the new company, said another person with knowledge of the matter.
Davis has no longer-term role envisioned at the combined company under the new proposal, said the person, who asked not to be identified because the information isn’t public. As many as 20 senior Xstrata executives may leave after the transaction is completed, the person said.
Xstrata spoke against the revised bid on Sept. 7, saying in a statement that the 17.6 percent premium to create the world’s largest mining company by combining with the commodity trader was priced “significantly lower than would be expected in a takeover.”
The premium is less than the average announced premium of 30 percent for all other mining deals valued at more than $5 billion since at least 1999, according to data compiled by Bloomberg.
Glencore, which trades commodities and owns mines, smelters and oil wells, is due to make its detailed offer today, the person said. The company halted its shares from trading in Hong Kong today ahead a statement.
The revised bid, which values the rest of Xstrata at 22.5 billion pounds ($36 billion), came after Qatar Holding LLC, the nation’s sovereign wealth fund that holds about 12 percent of Xstrata, held out against the deal.
The terms were changed after 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.
Blair’s $1 Million
Blair got about $1 million in fees for attending the three- hour meeting at Claridge’s Hotel in Mayfair, central London, until after midnight on Sept. 7, the Sunday Times cited people close to the matter as saying. Since 2008, Blair has been a senior adviser to JPMorgan Chase & Co., which is advising Xstrata.
The new offer of 3.05 Glencore shares for each of Xstrata’s, up from 2.8, includes the option of changing the bid 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, instead of 75 percent. Glencore is barred from voting its stake in the scheme of arrangement under U.K. takeover rules.
“Somewhere in excess of three is in the ballpark, it’s just a question of what premium prevails in terms of making it still attractive from a Glencore point of view,” Pengana’s Schroeders said in an interview.
Knight Vinke Asset Management, which has a 0.54 percent stake in Xstrata, yesterday rejected the latest proposal saying its independent board members should “seek the highest possible price and invite third party offers,” according to an e-mailed statement.
Glencore made its one-page proposal of changes a couple of hours before Xstrata’s shareholders were due to vote on 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, saying it would vote against it.
Standard Life Plc (SL/), which owns 1.4 percent of Xstrata and 0.8 percent of Glencore, said Sept. 7 it backed the offer. The company had called for the initial offer to be raised.
A takeover by Glencore would entitle Davis, 54, to 5.3 million pounds in salary and bonuses and $4.3 million in retirement benefits, according to the mining company’s annual report, unless a new payout is agreed to in the revised proposal. 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.
“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 in its Sept. 7 statement. The company said it will decide whether to reconvene shareholder meetings once it gets a detailed proposal.
Glasenberg is prepared to see Davis serve six months as CEO to help the revised offer win acceptance, the Telegraph newspaper reported, without saying where it got the information.
Xstrata has also softened its opposition to the change of management structure recommended in the original offer provided that the new offer is at the right price, the person said.
Glencore’s move has threatened the power-sharing agreement reached by both companies in February, when the then-21.9 billion-pound deal was announced. Davis was to have led the new company, and Glasenberg would have been deputy CEO. Xstrata investors, told of the latest proposal as they were arriving at the Sept. 7 meeting in Switzerland to vote on the deal, must now wait for more details from the suitor.
Glasenberg, 55, Glencore’s largest shareholder with about 15.7 percent, had repeatedly rebuffed calls to raise his 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 see Glencore reacquiring, among many other assets, the mines Xstrata bought a decade ago for $2.5 billion to become the largest thermal coal exporter.
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