Xstrata Backs Glencore Takeover Bid With Board Assurance
Xstrata Plc (XTA)’s board recommended shareholders back a $33 billion sweetened takeover offer by Glencore International Plc (GLEN) after gaining assurances on board composition and delinking votes on the bid from bonus payments.
Shareholders will be asked to consider two resolutions; one to approve the takeover along with 144 million pounds ($232 million) of retention bonuses; and a second that excludes the pay question, Xstrata said today in a statement. The outcome of a third vote, on the incentive payments alone, will determine which of the first two resolutions is taken into account.
The recommendation brings Glencore’s billionaire Chief Executive Officer Ivan Glasenberg a step closer to combining the two Swiss commodity companies in this year’s largest takeover. The merger, five years in the making, would couple Glencore’s trading operations with Xstrata’s coal, copper and zinc mines, creating a group with 130,000 employees in more than 40 nations.
“The separation of the two issues is right as it is for the management of Xstrata and Glencore to decide how to achieve the operational stability of the companies,” Neil Dwane, chief investment officer for Europe at Allianz Global Investors, owner of about 0.2 percent of Xstrata, said in e-mailed comments.
Board Recommendation
If the vote on retention payments is approved by 50 percent of investors, the deal’s success rests on the first resolution; if the payments are rejected, the second resolution determines the outcome. Both the first and second resolutions require 75 percent approval. Xstrata’s independent directors unanimously recommended that shareholders approve the bid and the bonuses.
“It’s risky to split the vote, but it’s a calculated gamble,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said in e-mailed comments. “If the now separate measures pass, Glencore is free from the taint of railroading through a compensation package against shareholder wishes.”
Xstrata intends to raise mine output by 50 percent through 2014 to benefit from growing Asian demand for coal and metals. Some investors have argued that such growth plans necessitate large retention payments to ensure the long-term commitment of senior Xstrata management. Others, including Standard Life Investments, have said that the bonus packages are excessive.
Deal Success
“We have always been in favor of the proposed retention arrangements to incentivize key Xstrata employees,” Glasenberg said in the statement. “Their commitment is vital as we look to capture the full synergy and value-creation benefits of the transaction.”
Glencore last month raised its offer to 3.05 of its shares for each in Xstrata from 2.8 after Qatar’s sovereign wealth fund, Xstrata’s largest shareholder after Glencore, said the original bid was too low. The merger of the two businesses would create the world’s fourth-largest mining company.
With the revised voting structure, the likelihood of the deal’s success is greater than 80 percent, Liberum Capital Ltd. said today in a note to investors. “But to our mind the key risk of a deal failure rests once again with Qatar Holdings.”
The Qatari fund, which owns about 12 percent of Xstrata, said in June that a bid of 3.25 shares would be “more appropriate.” As little as 16.5 percent of investors can prevent the merger because Glencore can’t vote its 34 percent stake. The commodities trader had invited Xstrata to propose changes to the bonus packages to ensure shareholder support.
Davis Fee
Xstrata, the world’s largest exporter of thermal coal, delayed its response to Glencore’s revised proposal for a week to resolve issues over management and to determine who would take a seat on the combined board vacated by its CEO Mick Davis.
“A current Xstrata Group operational executive will replace Mick Davis upon his departure as an executive director of the board of the combined entity, to preserve the majority of Xstrata directors on the board,” Zug-based Xstrata said today.
Davis, who will lead the merged group for six months before handing over to Glasenberg, won’t get any retention bonus, the statement shows. He will receive his contractual termination fee of 9.6 million pounds when he leaves, Xstrata said.
“The strategic rationale for combining Xstrata and Glencore remains highly compelling,” Davis said in the statement. “My objective during my time as CEO of the combined group will be to preserve and enhance the value Xstrata’s management team has created over the past 10 years through a well-planned integration process.”
Bid Premium
Xstrata intends to send new documents on the transaction to shareholders this month and announce voting dates, according to the statement. It expects that Baar-based Glencore will notify the European Commission of the deal shortly and that regulatory approvals will be secured by Dec. 31.
The revised offer reflects a 17.6 percent premium over the ratio of 2.59 implied by closing share prices on Feb. 1, Xstrata said today. The companies on Feb. 2 confirmed they were in talks. Xstrata advanced 2.3 percent at the close in London, while Glencore declined 0.3 percent to 342 pence.
A successful acquisition would be the second-largest in the mining industry, behind Rio Tinto Group’s $38 billion purchase of Canada’s Alcan Inc. in 2007. Global mining deals swelled to $98 billion last year, the highest volume since 2007 according to data compiled by Bloomberg, as commodity demand in developing nations and the deteriorating quality of mineral reserves pushed producers to seek greater economies of scale.
To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net
Xstrata Backs Glencore Bid With Board Assurance, Vote Change
Jack Atley/Bloomberg
Xstrata intends to raise mine output by 50 percent through 2014 to benefit from growing Asian demand for coal and metals.
Xstrata intends to raise mine output by 50 percent through 2014 to benefit from growing Asian demand for coal and metals. Photographer: Jack Atley/Bloomberg
Oct. 1 (Bloomberg) -- Rupert Nathan, an analyst at Fat Prophets, discusses Xstrata Plc's recommendation that shareholders vote in favor of a $33 billion sweetened takeover offer by Glencore International Plc. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Oct. 1 (Bloomberg) -- John Meyer, an analyst at Fairfax IS Plc, talks about the prospects for Xstrata Plc Chief Executive Officer Mick Davis after the company's board recommended shareholders back a sweetened takeover offer by Glencore International Plc. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Oct. 1 (Bloomberg) -- George Cheveley, portfolio manager at Investec Asset Management, talks about the possible merger of Xstrata Plc and Glencore International Plc, the outlook for commodities and the Chinese economy. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)
Oct. 1 (Bloomberg) -- Xstrata Plc has recommended shareholders vote in favor of a $33 billion sweetened takeover offer by Glencore International Plc after gaining assurances over the combined company's board and decoupling approval of incentive payments from a vote on the offer. Linzie Janis, Mark Barton and Caroline Hyde report on Bloomberg Television's "Countdown." (Source: Bloomberg)
Glencore CEO Ivan Glasenberg
Andrey Rudakov/Bloomberg
The recommendation brings Glencore’s billionaire Chief Executive Officer Ivan Glasenberg a step closer to combining the two Swiss commodity companies in this year’s largest takeover.
The recommendation brings Glencore’s billionaire Chief Executive Officer Ivan Glasenberg a step closer to combining the two Swiss commodity companies in this year’s largest takeover. Photographer: Andrey Rudakov/Bloomberg
Xstrata CEO Mick Davis
Mark Graham/Bloomberg
Xstrata CEO Mick Davis said “My objective during my time as CEO of the combined group will be to preserve and enhance the value Xstrata’s management team has created over the past 10 years through a well-planned integration process.”
Xstrata CEO Mick Davis said “My objective during my time as CEO of the combined group will be to preserve and enhance the value Xstrata’s management team has created over the past 10 years through a well-planned integration process.” Photographer: Mark Graham/Bloomberg
Xstrata Recommends Glencore’s Revised Bid to Shareholders
Simon Dawson/Bloomberg
A visitor stands at the reception desk inside the building housing the London offices of Glencore International Plc in London, U.K..
A visitor stands at the reception desk inside the building housing the London offices of Glencore International Plc in London, U.K.. Photographer: Simon Dawson/Bloomberg
Xstrata Recommends Glencore Bid After Winning Assurance on Board
Gianluca Colla/Bloomberg
The shared building that houses the headquarters of Xstrata Plc stands in Zug.
The shared building that houses the headquarters of Xstrata Plc stands in Zug. Photographer: Gianluca Colla/Bloomberg
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