Xstarta and Glencore Move to Boost Shareholder Turnout in Merger Vote

on Nov 12, 2012

**Getting Shareholders Onside for Merger**

Switzerland-based mining giant Xstrata (LON:XTA) and Anglo-Swiss commodity trader Glencore (LON:GLEN) have boosted their effort to increase shareholder turnout in the upcoming vote on their proposed merger, The Financial Times reported on 11 November 2012.
With just over a week until the crunch series of votes on the proposed Xstrata-Glencore merger, both sides are concerned that the wrong breakdown of shareholder votes and a low turnout could jeopardise the deal. As a result, Xstrata has this weekend taken the unusual step of placing adverts in British newspapers to remind investors of its board’s recommendation of the deal, which includes an increased offer of 3.05 Glencore shares for each Xstrata share, an improvement on the original offer of 2.8 shares. Xstrata’s advertising campaign to recommend support for the deal is also intended to remind investors of the deadline for votes. The company has once again underscored that shareholders may vote by proxy by November 16 or in person on the day of the meeting set for November 20.

**Complex Voting Structure**
Xstarta’s effort to seal the merger with Glencore has run into several unexpected obstacles since it was first unveiled nine months ago. What now threatens the proposed merger, which would create the world’s largest natural-resource company, is its complicated approval process.
!m[Xstrata Launches Advertising Campaign to Remind Investors of Voting Deadline and Recommend Support for Deal](/uploads/story/774/thumbs/pic1_inline.png)In September, the companies hammered out a novel voting structure in a bid to win support from key investors. The new system attempted to separate a vote on the merger from a vote on the proposed retention package. Some investors, such as the third-largest Xstrata’s stakeholder BlackRock (NYSE:BLK), had been opposed to the payout. Others investors, believed by some involved to include Qatar Holding, the second-largest Xstrata shareholder, supported the retention arrangements. The solution Xstrata has developed is a three-step voting process that lets the deal go through without the approval of the retention payments. Xstrata shareholders will be asked to cast three votes: on a deal that includes the retention payments, on one that does not and on the retention payments themselves. For the deal to be approved there has to be compatibility between one of the first two votes and the third. Adding to the difficulty is that the first two votes are subject to approval by 75 per cent of the Xstrata shares, excluding those of Glencore, which account for 34 per cent of the miner. The threshold on the third resolution is 50 per cent.

According to some analysts, this complex voting procedure contains land mines that could blow up the deal even though most shareholders seem to be in favour of it.
**Some Investors May Oppose Merger**
Despite the general expectation of a positive vote, The Sunday Telegraph reported on 11 November 2012 that several shareholders will vote against the Xstrata-Glencore merger. Those who are set to oppose the deal include Norges Bank Investment Management, which is Xstrata’s fourth-biggest shareholder with a 2.96 per cent stake, Threadneedle Investments, Schroders Investment Management (LON:SDR) and investment management firm Knight Vinke.
The four shareholders are understood to be prepared to block the merger for a number of reasons including the value of the deal, governance and strategy. According to Takeover Panel rules which prevent Glencore’s shares in Xstrata the right to vote, the takeover can be blocked by as little as 16.48 per cent of shareholders.


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