Xstrata’s Investors Approve a Takeover by Glencore

Glencore's CEO Ivan Glasenberg and Xstrata's CEO Mick Davis (Bablaparis.com Picture)

Shareholders voted yesterady in favor of Glencore International’s $31 billion takeover of the mining company Xstrata, but in a rebuff to the Xstrata board, vetoed multimillion-dollar bonuses for the company’s top managers.In response, John Bond, the chairman of the board, said he would resign after the proposed takeover was completed. Mr. Bond had been in line to be chairman of the combined company.

Still, the deal, which took more than nine months of sometimes tortured negotiations, has cleared a huge hurdle, with only antitrust approval remaining before it can be completed. The merger will create a global mining giant with a market capitalization of more than $80 billion.

It would occur at a difficult time for the mining industry. After experiencing strong growth in recent years, commodity prices have been hit recently by a slowdown in major markets like India and China. Analysts say a combined Glencore-Xstrata could prompt a new round of acquisitions in the sector, as companies adjust to the economic reality of lower prices and a decline in demand from fast-growing emerging economies.

“As a combined entity, the company will have access to more cash flow to pursue an aggressive M. and A. strategy,” said Nik Stanojevic, a mining analyst with Brewin Dolphin in London. “Both companies have a good track record of acquisitions, though future deals could prove difficult in a world of low commodity prices.”

The deal has always been contentious.

Since Glencore announced its all-share offer in February, it has met with strong investor opposition over the value of the bid and large executive retention bonuses worth a combined $220 million. To win investor support, Glencore, based in Baar, Switzerland, had to increase its all-share offer by 9 percent, to 3.05 of its own shares for each share of Xstrata, which is based in Zug, Switzerland.

As part of the revised deal, Glencore insisted that its chief executive, Ivan Glasenberg, take over the merged company six months after the deal was completed. Under the original terms, Xstrata’s chief, Mick Davis, and his management team were to retain control longer.

Investors, however, continue to balk at the proposed executive payouts, which were aimed at retaining around 70 of the mining company’s top managers.

In a complicated vote structure on Tuesday, almost 80 percent of Xstrata’s eligible shareholders vetoed the multimillion-dollar bonuses despite voting for the deal.

Prominent investors, including Knight Vinke Asset Management, had said they would not support the deal.

“We, as major shareholders in Xstrata, have no confidence in the independence and robustness of the current Xstrata board,” David Trenchard, vice chairman of Knight Vinke, which voted against the deal and the payouts, said in a statement.

The bonuses were rejected after an announcement last week by Qatar Holding, which has increased its stake in Xstrata to 12 percent from 3 percent since the deal was announced, that it would abstain from the shareholder vote on the payouts.

While Qatar, a sovereign wealth fund, said it had abstained to try to avoid influencing other shareholders, advisers to Glencore and Xstrata said Qatar’s decision had led other investors to reject the payouts. “If their objective was not to affect the vote, they have failed quite spectacularly,” said an adviser to one of the companies, who spoke on the condition of anonymity.

Glencore’s takeover of Xstrata is the culmination of a long history between the companies. Glencore has held a large stake in Xstrata since the mining company was listed on the London exchange in 2002, and Mr. Glasenberg of Glencore sits on Xstrata’s board. Glencore was not permitted to participate in the shareholder vote Tuesday.

The deal is one of the few bright spots in a lackluster global takeover market. In 2012, the dollar value of announced deals has fallen 8 percent, to $2.1 trillion, from the period in 2011, according to Thomson Reuters data.

Volatility in the global financial markets and uncertainty caused by the European debt crisis have prompted many companies to pull back on deals to protect their capital reserves. Other deals, including the one between the European aerospace giants BAE Systems and EADS, have collapsed because of local political rivalries.

(By Mark Scott & NYT)

Related posts

Leave a Comment