Xstrata and Glencore agree merger terms hours from deadline

Xstrata finally agreed to back Glencore’s £56 billion revised merger proposal today, ending months of uncertainty and paving the way for the creation of the world’s biggest mining and commodities trading group.

Hours before a 7am Takeover Panel deadline to agree terms or walk away, Xstrata and Glencore resolved differences over the make-up of the combined board after the merger.

They also agreed that shareholders can vote for it with or without about £140 million of performance-related retention payments, which Xstrata claims are needed to persuade about 70 of its key staff to remain for at least two years after the merger.

Xstrata had originally made the deal contingent on these payments. However, in the face of shareholder opposition, Xstrata and Glencore have “decoupled” the vote, meaning the deal can go through without them.

Xstrata non-executive chairman Sir John Bond said: “Without the ability to retain key Xstrata managers to run the combined group’s mining operations through the revised management incentive arrangements, the independent Xstrata non-executive directors believe that the value proposition of the combined entity is at risk. This was reaffirmed by major shareholders … . Nonetheless, some other shareholders remain opposed either to the principle of retention payments or to the originally proposed interconditional nature of the merger resolutions.”

The resolutions are expected to be put to the vote in about six weeks.

Under the terms of the deal Glencore will give Xstrata investors 3.05 of its shares for each one of theirs. This compares to the original ratio of 2.8, which Glencore abandoned in the face of shareholder opposition.

Under the original arrangement, Xstrata chief executive Mick Davis was due to take the top job, with Glencore boss Ivan Glasenberg (pictured) lined up to be his deputy. In additional to raising the price, Glencore’s sweetened offer also stipulated that, after six months, Glasenberg rather than Davis would run the company.

Glencore has promised Xstrata that Davis’s boardroom seat will go to another of its managers when he leaves, ensuring that former Xstrata employees retain six seats to Glencore’s five.

Although investors broadly welcomed the agreement, support was by no means unanimous. Threadneedle Investments, which owns 0.29 per cent of Xstrata, issued a statement saying it was “firmly opposed” to the deal.

Shares in Xstrata jumped by 27.7p to 985.20p and Glencore rose by 1.6p to 3.44.7p.

COMMENT: At last, it looks like a done deal

The top brass at Glencore and Xstrata finally look to have found a solution that should enable the deal to go through — and could safeguard about £140 million of precious retention payments in the process.