Glencore-Xstrata merger under pressure

Glencore Xstrata

Last Updated at 16 Apr 2014, 04:27 ET *Chart shows local time Glencore Xstrata intraday chart
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Commodities trader Glencore is under pressure to change the terms of its $90bn (£56bn) merger with Xstrata.

Glencore said it was considering proposals from Xstrata's board relating to "certain incentive arrangements", but would not comment further.

Investors have criticised the retention terms for Xstrata management.

In addition, Qatar Holdings, a major Xstrata shareholder, has said it wants more Glencore shares for its holding than originally discussed.

Retention arrangements challenged

Xstrata wants Glencore to guarantee Xstrata chief executive Mick Davis a position on the board of the new company with a salary of £9.5 million and performance incentives worth 400% of his salary, for the first three years.

Start Quote

Xstrata's headquarters in Zug, Switzerland

The scheme is conditional upon, among other things, the passing of the Management Incentive Arrangements Resolution”

End Quote Xstrata's proposal

Its other senior management and board members have also been offered lucrative retention arrangements over the same period.

The company said that if its proposed management structure and incentive arrangements are not passed when shareholders vote on the deal on 12 July, "the merger will not become effective".

However, some major shareholders are unhappy about the incentive terms, and reports suggest Xstrata chairman Sir John Bond is drafting an amended package in response.

Deal value re-think

At the same time, Xstrata shareholder Qatar Holdings, through which the Qatari royal family own 11% of the business, said that it wanted more Glencore shares for its stock.

It now says that 3.25 new Glencore shares for every Xstrata share, rather than the current offer of 2.8, "would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata".

According to press reports, a sufficient number of Xstrata shareholders oppose the merger to prevent it going through.

Glencore buys and sells metals, crops and fuels in the financial markets and invests in mining companies.

Xstrata owns vast reserves of coal, copper and nickel across Africa, South America and central Asia.

The merger plan, first announced in February, would create a company worth $90bn (£56bn) that can benefit from both extracting and selling those commodities.

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