Xstrata Plc, the largest exporter of utility-grade coal, delayed its response to a 21.6 billion-pound ($35.1 billion) takeover bid by Glencore International Plc to resolve issues over management and the board at the new company, according to people familiar with the situation.
The surprise delay to a response due Sept. 24 buys time for the two sides to determine who will take a seat on the combined board vacated by Xstrata Chief Executive Officer Mick Davis, said the people, who asked not to be identified as the talks are private. Glencore CEO Ivan Glasenberg said Sept. 7 he’d take the top job after the deal, reversing a plan for it to go to Davis.
“They are clearly struggling,” Charles Newsome, London-based investment director at Investec Plc, said in an interview with Bloomberg Television. “It’s a difficult deal for them to pull off because of the way it is structured. I’ve been quite uncomfortable with this all the way along.”
Xstrata is now due to respond to Baar, Switzerland-based Glencore’s revised all-share proposal by 7 a.m. in London on Oct. 1, Xstrata said yesterday in a statement. The companies jointly sought the extension, according to the statement.
“To simply drag it out another week adds yet more opacity to an already pretty murky situation,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said by phone.
Xstrata shareholders are probably “increasingly disillusioned that their interests are really being protected,” he said. “The extension just means a week more of uncertainty, in which more things could go wrong.”
Glencore, seeking to create the world’s fourth-biggest mining company, was forced to boost its offer for Xstrata after investors said they would vote against the initial proposal. It increased its offer to 3.05 of its shares for each one in Xstrata on Sept. 7 after investors including 12 percent shareholder Qatar Holding LLC called for a higher bid.
Xstrata dropped after yesterday’s announcement and closed down 4.2 percent at 1,005 pence in London. Glencore declined 1.7 percent to 362 pence.
“The extension was requested to enable Xstrata’s independent non-executive directors to take full account of feedback from consultation with key Xstrata shareholders,” the Zug, Switzerland-based company said in yesterday’s statement.
As few as 16.5 percent of Xstrata shareholders can block the deal because Glencore is barred from voting its Xstrata stake of 34 percent.
Xstrata has discussed Glencore’s proposal with its investors, including whether provisions intended to retain managers with intimate knowledge of its mines and other assets are sufficient, according to a person with knowledge of the meetings.
Glasenberg last week gave assurances to Xstrata’s independent directors about retaining the key staff to run the mining businesses, according to the person.
The board of the combined company was to have included Davis, Glasenberg and a further four non-executive directors from each company. Under the terms of the revised offer, Glasenberg plans to lead the group within six months of the deal’s completion, scrapping the original proposal that Davis hold the position for about three years.
Under both the initial and revised takeover proposals, Xstrata Chairman John Bond would hold the same post in the combined company.
Xstrata shareholders Standard Life Plc and Fidelity Worldwide Investment objected to $278 million of retention payments originally proposed for Xstrata executives as part of the takeover.
Glencore said Sept. 10 it asked Xstrata’s board to consider whether there were any changes it wished to propose to the payments, which include 28.8 million pounds in shares of the combined group to Davis over three years. Glencore said that day it was “content” with Xstrata’s request that its senior management and employees get retention and incentive payments.