Xstrata Board Asks Shareholders To Approve Glencore Merger

The Board of Directors of Xstrata PLC (LON:XTA) said today, they have urged shareholders to accept Glencore’s $33 billion takeover bid. Switzerland-based Glencore International Plc (LON:GLEN) revised its offer from 2.8 shares per Xtrata share, to 3.05 Glencore shares. Qatar sovereign wealth fund, which holds a 12 percent stake in Xstrata, had opposed the previous bid.

The offer values Xstrata PLC (LON:XTA) at $51.5 billion, or 31.9 billion pounds. According to FactSet, Glencore International Plc (LON:GLEN) has a market value of 23.5 billion pounds. If successful, the deal will create one of the world’s largest natural resources firms, with revenues of over $175 billion, and above 130,000 employees in 40 countries. The Anglo-Swiss company, Xstrata PLC (LON:XTA), produces coal, copper, nickel, and zinc. Glencore, which went public last year, is a trader of raw materials, such as coal, corn, and cotton.

Now, the management structure and retention bonuses to executives are the primary stumbling blocks. According to the deal, the current chief executive of Xstrata, Mick Davis, will remain in his position for six months, before being replaced by Glencore’s billionaire CEO, Ivan Glasenberg. Davis won’t receive any retention bonus, instead he will get a contract termination fee of $9.6 million.

“My objective during my time as CEO of the combined group will be to preserve and enhance the value Xstrata’s management team has created over the past 10 years, through a well-planned integration process,” said Mick Davis, the chief executive of Xstrata. “A merger will fuse the respective strengths of the two companies into a unique, vertically integrated natural resources group,” he said.

Xstrata PLC (LON:XTA) said it would send the new documents to shareholders, and then announce voting dates. Meanwhile, Glencore International Plc (LON:GLEN) has to notify the European Commission about the deal and obtain their approval by December 31. The merger must be approved by at least 75 percent of the shareholders, but the directors’ retention package needs only 50 percent votes in favor. The retention package has now been reduced to 144 million pounds. Glencore, which already owns 34 percent of the shares in Xstrata PLC (LON:XTA), isn’t allowed to vote.

Xstrata PLC (LON:XTA) shareholders have been reluctant on supporting the merger, because they think the company’s value will increase substantially in the future, if it remains independent. Due to increasing demands for metals and coal in Asian markets, Xstrata is planning to raise its output by 50 percent before FY2014.

Xstrata PLC (LON:XTA) shares jumped 3 percent, to 985.2 pence in London trading. Glencore International Plc (LON:GLEN) was up 0.5 percent, at 344.95 pence.