Qatar Said to Support Glencore Bid, Xstrata Bonuses

Qatar Said to Support Glencore Bid, Xstrata Bonuses in Deal Vote
Hussain Ali Al-Abdulla (L), vice chairman, and Chief Operating Officer Khalifa Jassim Al-Kuwari, both of Qatar Holding LLC, at the company's annual general meeting on April 19, 2012 in Hamburg. Photographer: Oliver Hardt/AFP via Getty Images

Qatar Holding LLC, Xstrata’s second-largest shareholder, is poised to approve Glencore International Plc’s $31.2 billion bid for the company and bonuses for about 70 managers, according to three people with knowledge of the plan.

The sovereign wealth fund is primarily concerned with ensuring the merger get done and it doesn’t oppose the payments, which have been criticized by investors including Standard Life Investments and Knight Vinke Asset Management LLC, the people said, asking not to be identified discussing a private matter. Fidelity Worldwide Investment, owner of about 0.6 percent of Xstrata, also supports the takeover, a fourth person said.

Shareholders are due to vote Nov. 20 on plans to create the world’s fourth-largest mining company. A positive vote from Qatar Holding on the deal and the bonuses would raise the prospects of the year’s biggest takeover being completed.

Qatar Holding, the investment arm of the Qatar Investment Authority, will probably vote to maximize the number of routes to completing a deal, the people said.

Xstrata investors will be asked to consider two resolutions: one to approve the takeover along with 144 million pounds ($228 million) of retention bonuses for about 70 Xstrata employees and a second that approves the deal while excluding the pay question.

Holders of Zug, Switzerland-based Xstrata will also be asked to consider the retention package as a standalone proposal. That vote, to be held in a separate meeting about 15 minutes later, requires 50 percent support. The outcome will determine which of the first two resolutions will be acted on.

Mining Assets

Investors holding as little as 16.48 percent of Xstrata can block the transaction because U.K. takeover rules prevent Baar, Switzerland-based Glencore from voting its 34 percent stake in the world’s largest thermal-coal exporter. The first two proposals to support the combination with or without bonus payments must be backed by a vote of 75 percent.

A “yes” vote would validate the result of the first resolution -- the approval of the deal together with the proposed bonuses -- while a “no” vote would mean the deal’s success rests on the resolution that excludes the pay question.

Nobody at Qatar Investment Authority in Doha was available for comment when Bloomberg News called outside normal business hours.

Glencore raised its bid on Sept. 7 to 3.05 of its shares for each Xstrata share, from 2.8 shares proposed in February, after Xstrata investors including Qatar with its 12 percent stake demanded a higher offer. Xstrata on Oct. 1 recommended shareholders back the revised deal and vote for the bonuses to retain managers responsible for its mining assets, which will account for about 80 percent of the combined company’s earnings.

‘Shareholder Spring’

The Glencore-Xstrata deal, which initially involved 172.8 million pounds ($273.8 million) in executive payments before they were amended, was a high-profile target of a so-called “shareholder spring” during which investors revolted over pay at some U.K. and U.S. companies.

Investors this year rejected proposed executive compensation for Martin Sorrell, chief executive officer of advertising firm WPP Plc, and Citigroup CEO Vikram Pandit, and for the management at insurer Aviva Plc.

Qatar Prime Minister Sheikh Hamad bin Jassim Al Thani, who chairs Qatar Holding, said on Oct. 15 that the Persian Gulf kingdom looked favorably on Glencore’s sweetened bid.

“We’re looking in favor of doing something between the two companies,” he said in Doha that day.

Scottish Widows

While Standard Life, which holds about 1.4 percent of Xstrata, plans to vote for the deal and against the retention payments, Scottish Widows Investment Partnership, owner of about 1.1 percent, said on Nov. 9 it supports the combination and the bonuses.

Shareholder advisory groups are also divided. Pensions & Investment Research Consultants Ltd. recommended opposing the deal, citing a lack of due diligence and board independence at Xstrata. Institutional Shareholder Services Inc. and Glass Lewis urged investors to support the takeover, while calling for the retention bonuses to be voted down.

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