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Xstrata, Glencore announce new deal for massive tie-up

Mining group and commodities giant say they have reached agreement on final terms for their long-awaited merger

AFP, Monday 1 Oct 2012

Swiss mining group Xstrata and commodities giant Glencore said on Monday they had agreed on new terms for their tie-up to create a massive company worth about $90 billion.

"The Glencore directors and the independent Xstrata non-executive directors announce that they have reached agreement on the final terms of a revised recommended all-share merger of equals, on the basis set out in this announcement," they said in a statement.
The general assemblies of both Swiss companies had been set to approve the blockbuster merger at the beginning of September but the deal ran into major resistance from several Xstrata shareholders demanding better conditions.
Qatar Holding, which is wholly owned by Qatari's sovereign wealth fund and is the single biggest shareholder in Xstrata with more than 12 per cent of its shares, had led the opposition.
The opposition forced Glencore to raise its offer, giving Xstrata shareholders 3.05 in new Glencore shares for every existing stock, which the companies said represents a 17.6-per cent premium on the price of the miner's shares before the merger bid was announced in February.
Xstrata and Glencore want shareholders to vote so the combined company, worth about $90 billion can come into being by the end of the year.
Xstrata's shares rose by nearly 2.0 percent in morning trading to 976.50 pence, while Glencore's slid 0.9 per cent to 340 pence.
A key disagreement that had threatened the deal, massive retention payments to senior Xstrata managers to ensure they remain with the merged company, will no longer be mandatory for the tie-up to go through and Xstrata's departing chief executive will no longer get a massive payout.
Shareholders will get to vote upon the retention payments, and the directors of the companies recommended that shareholders back the incentives.
"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," Xstrata non-executive director John Bond said in a statement.
Glencore chief executive Ivan Glasenberg said "their commitment is vital as we look to capture the full synergy and value creation benefits of the transaction and realise the potential of both companies' strong long-term organic growth plans".
The revised deal will see Xstrata chief executive Mick Davis, who is to lead the combined company for its first six months then step aside for Glencore's Glasenberg, removed from the retention package, saving roughly £29 million.
The company had previously planed 173 million pounds sterling in retention payments to 73 senior Xstrata managers, according to Dow Jones Newswires.
Bond said the change "will, we believe, enable shareholders to vote in line with their convictions in respect of retention arrangements, without influencing their voting intention on the (merger)".
Another change in the revised merger terms will see an Xstrata executive take over Davis's position as executive director of the merged group's board.
Societe Generale noted that as shareholders had been consulted on the revised deal, "it is clear to us that Qatar is supporting the transaction" this time round.
Jefferies consultancy was also optimistic that the deal would close, but it pointed out that the merged company is "not without risk".
"The merged company would still have high financial leverage and high earnings sensitivity to changes in commodity prices. Glenstrata would also have greater geopolitical risk," it added in a noted.
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