Wednesday 21 February 2018

Xstrata recommends £52bn Glencore merger

THE board of Xstrata has recommended a £52bn (€65m) all-share merger with Glencore, paving the way for the creation of a giant mining and commodities trading company after seven months of haggling.

Non-executive directors of Xstrata have accepted a revised offer of 3.05 Glencore shares for each Xstrata share and to allow investors to vote separately on the merger and controversial retention bonuses for the miner's executives.

Sir John Bond, Xstrata's non-executive chairman, said in a statement that this meant shareholders could "vote in line with their convictions" on retention payment without scuppering the deal itself.

The original tie-up was structured so that it hinged on shareholders’ approval of the retention payments, which would total at least £140m in bonuses if managers stayed for three years.

Xstrata’s board has been reluctant to abandon the packages as it sees them as necessary to retain key staff but investors have opposed them as “pay to stay” bonuses.

The two FTSE 100 companies have agreed that Xstrata retain the majority of directors on the combined board, a move by the company to ensure Glencore chief executive Ivan Glasenberg does not seek to snatch control.

Mick Davis, who was to lead the combined group, will leave after six months at the helm with an expected £8m pay-off. Mr Glasenberg will then take up the role - a demand which of part of his revised offer.

The final points of a deal were agreed by Xstrata over the weekend, ahead of a Takeover Panel deadline of 7am on Monday to announce the terms of a deal.

Sir John Bond, chairman of Xstrata, will be chairman of the combined group and Glencore chairman Simon Murray is expected to step down.

When he leaves, Mr Davis' board seat will be filled by an Xstrata operational executive giving the miner six directors on the board, against five for Glencore.

It is understood that Qatar will back both the recommended takeover and the retention deal.

The combined groups have a market value of £52bn, based on the closing price of both companies on Friday.

Jeffries said in a note on Monday: "While our analysis indicates that the investment case for Glenstrata is attractive, it is not without risk.

"The merged company would still have high financial leverage and high earnings sensitivity to changes in commodity prices. Glenstrata would also have greater geopolitical risk and probably a much more aggressive M&A strategy than BHP or Rio."

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