Loss of Xstrata Managers May Hurt Glencore Deal, Bernstein Says

The possibility that Xstrata Plc (XTA)’s managers and professionals will quit after a planned $33 billion takeover by Glencore International Plc (GLEN) could hurt the combined company, according to Sanford C. Bernstein Ltd.

There’s a “potentially negative impact upon the combined entity from the proposed loss of the strategic and operational talent that has guided Xstrata’s hitherto meteoric rise,” Paul Gait, a Sanford analyst, wrote in a note today. The loss could be “potentially material” to the combined group, he said.

Xstrata’s board this week recommended Glencore’s increased offer, which was revised last month after opposition from shareholders including Qatar’s sovereign wealth fund. 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 revised proposal would also see Xstrata Chief Executive Officer Mick Davis leave the role at the combined company within six months, handing over to Glencore CEO Ivan Glasenberg.

“The departure of any CEO and the inevitable attendant uncertainty as to the firm’s resulting direction is disruptive and has the potential to, in Xstrata’s case, at the very least slow down the firm’s hitherto meteoric rise,” said Gait, at Sanford in London. “Were this to be the case, the value of Xstrata to Glencore could potentially be reduced.”

Investors 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 in an Oct. 1 statement. The outcome of a third vote, on the incentive payments alone, will determine which of the first two resolutions is taken into account.

Davis won’t get any retention bonus, Xstrata said this week. He will receive his contractual termination fee of 9.6 million pounds when he leaves, it said.

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net