Glencore softens Xstrata proposals

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Glencore intends to keep Sir John Bond, chairman of miner Xstrata, at the helm of the combined companies as the commodities trader prepares to lay out last-ditch compromise proposals to salvage the $80bn merger.

Ivan Glasenberg, Glencore’s chief executive, on Friday unravelled the deal negotiated in February, telling Xstrata’s board he would only increase his offer to 3.05 Glencore shares for each of the miner’s if he could head the new company.

The last-minute move by Mr Glasenberg, who had previously insisted he would not budge despite calls from Qatar’s sovereign wealth fund for improved terms, seemingly relaunched the merger as a full-blown takeover and elicited an icy response from the miner’s board.

But according to documents that went to Xstrata’s board on Sunday evening, Glencore has stopped short of taking such an aggressive tack.

The proposals – which the trader intends to say are its final offer, said people familiar with its thinking – appear to address some concerns raised by Xstrata’s board on Friday, when it said it needed more information to consider Mr Glasenberg’s latest plans. Xstrata declined to comment on Sunday.

In the recast deal, Glencore would retain the same balanced board structure as proposed in February, with Xstrata’s Sir John as chairman and equal numbers of non-executive directors from each company’s board.

Moreover, Mick Davis, Xstrata’s chief executive, would stay in his role at the merged company for six months before passing the reins on to Mr Glasenberg.

Mr Davis could receive an additional payout on top of his existing termination arrangements, which give him about £8m in cash. Shares awarded under pay schemes would also vest, worth some £28m.

Crucially, Glencore has also proposed to keep the deal’s legal structure, requiring approval from 75 per cent of shareholders, with the trader prevented from voting its 34 per cent stake.

Changing to a different structure, which would require only 50 per cent of voting shareholders to back the deal, would still need the consent of Xstrata’s board.

Glencore plans to talk to shareholders about a new retention package to keep members of Xstrata’s senior management in place after Mr Davis leaves.

Qatar Holding, which owns more than 12 per cent of Xstrata, will wait for the miner’s board to consider the new terms before making its intentions known, said people familiar with its thinking.

Xstrata’s board on Friday noted the new price represented a premium of only 17.6 per cent compared to share prices in early February, “significantly lower than would be expected under a takeover”.

Replacing Mr Davis with Mr Glasenberg would represent “significant risk around the retention of the Xstrata senior and operational management intended to be responsible for approximately 80 per cent of the combined group’s earnings,” they added.

But the proposal to keep Sir John as the chair of the combined company’s board could rile shareholders who have argued that he, and senior independent director David Rough, did not fight hard enough in negotiating with Glencore originally and let down investors by approving £173m in retention payout to senior management.

Glencore and Qatar Holding declined to comment.

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