Glencore/Xstrata Merger Close To A Happy Ending

on Sep 21, 2012

The drama over the merger of Glencore (GLEN) and Xstrata (XTA.L) may finally be drawing to a close. The boards of the two companies were holding last-minute meetings on Thursday, September 20, the Financial Times reported. The purpose of these talks was to review the final details of what’s often referred to as the biggest mining deal in history. Valued $80 billion, the merger has had plenty surrounding drama and to-ing and fro-ing to support such claims.

The deal didn’t go smoothly from the start, as Glencore’s initial offer of 2.8 Glencore shares per Xstrata share faced a tough opposition. To save the deal from collapsing, Glencore’s Chief Executive Officer Ivan Glasenberg, this month launched an amended offer of 3.05 shares of the commodities trading house for each of the Xstrata’s, but on the condition that he become CEO of the joint group in six months. The offer was generally well received by Xstrata shareholders.

Xstrata independent directors have been discussing the new offer and the talks have included the subject of the changes that the miner has to introduce in a retention package for its executives. Qatar Holdings, the Middle Eastern wealth fund which was amongst the biggest opponents of the deal (and Xstrata’s biggest independent shareholder), has been included in the talks.

!m[](/uploads/story/438/thumbs/pic1_inline.png)The meeting of the Xstrata board on Thursday was expected to be the last for the deal. According to people familiar with the talks, small changes will likely be made by the board to the retention packages proposed for Xstrata’s senior staff. With Mick Davis, the miner’s CEO, giving up his role in favour of Glasenberg, his £29 million package will be taken out of the scheme and payments to other executives won’t accelerate on his departure.

Performance criteria will most likely remain similar to those set in June, when an outcry from shareholders forced the miner to introduce thresholds based on cost savings to the payment proposals. Payouts in May reached a total of £173 million in May, which was the primary reason for the investors’ discontent.
Glencore’s board scheduled a meeting after Xstrata’s to review the miner’s position.

Marc Rich, the commodities trader and founder of the trading house that, after a management buyout,
became Glencore in 1993, commented on the merger, stating that it would allow for the joint company to play a more important role on the commodity markets and that the stronger position of the new entity would eventually result in higher profits.
““The larger a company is, the more market power it has, and that makes it easier to control price-setting,” Rich said.
The merger between one of the largest mining groups and the commodity trading powerhouse could indeed change the current status quo in the natural resources industry. But as of now, there is still no official announcement of the deal’s closure. The deadline set by regulators expires on Monday, September 24. No announcements are expected until then.


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