Qatar Holding Backs Glencore $31 Billion Bid for Xstrata

Qatar Holding Backs Glencore’s $31.2 Billion Bid for Xstrata
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. Photographer: Gianluca Colla/Bloomberg

Qatar Holding LLC, Xstrata Plc’s second-largest shareholder, will vote for a $31 billion bid for the mining company by Glencore International Plc, boosting the likelihood the year’s biggest takeover will succeed.

The investment arm of the Qatar Investment Authority “continues to see merit in a combination of the two companies and is satisfied with the terms of the proposed merger,” it said today in a regulatory statement.

At a meeting to be held Nov. 20 to approve the creation of the world’s fourth-largest mining company, Qatar Holding will vote in favor of a resolution that approves the deal subject to a later vote on management retention payments being passed. It will also back a second resolution that gives the go ahead for the transaction if the payments aren’t passed, the fund said.

“This means the deal is all but done,” Ash Lazenby, an analyst at Liberum Capital Ltd. in London, said today in a note.

Qatar, the owner of 12 percent of Xstrata, will abstain from voting on the incentive-payments resolution, it said. The payments have been criticized by investors including Standard Life Investments and Knight Vinke Asset Management LLC.

There’s now an increased chance investors will block the payments to Xstrata management as their “governance departments now have increased leverage to vote against” them, Lazenby said.

Two Resolutions

The first of the two resolutions is 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.

Qatar Holding said it believes that retaining Xstrata’s operational management is critical to the success of the combination with Baar, Switzerland-based Glencore.

“However, QH is conscious of the sensitivities concerning governance issues in the U.K. and does not feel it appropriate to influence the outcome either way,” it said. For that reason, it will abstain from voting on the retention incentive plan.

Highest Ratio

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 demanded a higher offer. Xstrata on Oct. 1 recommended shareholders back the revised deal and vote for bonuses to retain managers of its mining assets, making up about 80 percent of the combined company’s earnings.

Xstrata advanced 1.3 percent to 959.5 pence by 8:58 a.m. in London trading and Glencore fell 0.9 percent to 328.4 pence. Xstrata stock is at 2.92 times that of Glencore, the highest since the transaction was announced in February.

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

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

Fidelity Worldwide Investment, owner of about 0.6 percent of Xstrata, also supports the takeover, a person familiar with the matter said yesterday.

Standard Life

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 advisery 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.

Qatar Holding is advised by Lazard & Co. Ltd. Glencore is working with Citigroup Inc. and Morgan Stanley as financial advisers. Xstrata has hired Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Nomura Bank International Plc.

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