Xstrata-Glencore merger bid revived

Xstrata board backs Glencore merger

Multibillion-pound plans for the creation of a new natural resources powerhouse were revived today under a last-ditch deal.

The board of mining giant Xstrata has recommended that its shareholders back updated merger proposals with commodities trader Glencore, beating a deadline of this morning set by the City takeover panel.

The £56bn merger has turned into a long-running saga since being proposed in February amid shareholder discontent over the terms.

One of the most contentious issues has been a £227m retention package for top managers, with several large shareholders threatening to block the tie-up unless the bonus scheme is toned down.

Xstrata has agreed to give shareholders a separate vote on the bonuses, allowing the deal to go ahead despite potential anger over pay proposals. It believes the incentive deals are essential in order to retain key Xstrata managers for running the combined group's mining operations.

The two firms have also addressed board composition concerns, with assurances that Xstrata will retain the majority of directors on the combined board.

Ivan Glasenberg, chief executive of Glencore, improved the terms of the bid earlier this month after former prime minister Tony Blair was drafted in to help broker a meeting between Glencore and Qatar.

Middle East sovereign wealth fund Qatar Holdings – Xstrata's second largest shareholder – had threatened to block the merger because it believed the original deal was too low.

Glasenberg increased the bid but demanded control of the combined group in return.

Under the original terms, Glasenberg was due to be deputy chief executive in the new firm, with the top job going to current Xstrata boss Mick Davis.

Xstrata and Glencore – among the top 20 firms on the London stock market – will have operations in 33 countries and should be better able to compete against bigger rivals BHP Billiton and Rio Tinto if the merger goes ahead.

Glencore, the world's biggest commodities trader, with products including oil, coal, gold and foodstuffs, has been circling Xstrata for a number of years and has already built up a sizeable stake in the group.

Last year Glencore became the first company in 25 years to be fast-tracked into the FTSE 100 Index in London's largest flotation.

Anglo-Swiss firm Xstrata is the world's biggest exporter of thermal coal and also produces copper, nickel and zinc. It also has a lead smelter in Kent which employs around 100 staff.

The merger price, which values Xstrata at £32bn, is 17.6 per cent higher than the level seen before it emerged the two companies were in talks.

Merger documents will be posted to shareholders later this month, with the proposals requiring the support of 75 per cent of votes at a special meeting. Glencore, which already controls 34 per cent of Xstrata, cannot vote. It is expected that the deal will be completed by the end of the year.

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