Glencore's bid for Xstrata wins Qatari backing
Wealth fund to abstain from voting on controversial pay plan
By Gaurav Sharma | CFO UK | Published 12:22, 15 November 12
Commodity trader Glencore’s US$32 billion (£20.2 billion) bid for miner Xstrata received a major boost after Qatar Holdings backed the deal on Thursday.
In an announcement, the gas-rich state’s sovereign wealth fund said it would vote in favour of two key resolutions on the takeover aimed at creating a mining and trading powerhouse. However, Qatar Holdings said it would abstain from voting on a management retention plan which may see the chances of that component of the deal being struck down.
Xstrata has long argued that the management retention plan was crucial to the positive realisation of the merger as it would ensure that key executives stay on and oversee it. The plan offers 73 senior executives a total of £170 million in pay and Xstrata insisted over the summer that the takeover would be tied to the pay deal.
Qatar Holdings initially supported the takeover in February, but subsequently voiced opposition to terms of the deal in June. The Qataris were not alone in voicing their opposition to Xstrata’s management retention plan as other shareholders such Fidelity and Standard Life Investments have also blasted the plan labelling it as borderline greed.
Earlier in response to shareholder pressure, Glencore increased its offer to 3.05 new shares for every Xstrata share from an earlier bid of 2.8 per share. The Qataris have a 12 percent stockholding in a deal structure that permits only 16.48 percent of Xstrata shareholders to block any bid. Their abstention would make the passage of the pay deal as well the position of Xstrata Chairman John Bond, who backed the pay plan, very precarious.
The vote is scheduled for November 20. Then on November 22, the European Commission will give its verdict on the merger. Chinese approval would also be needed as the country accounts for one-third of Xstrata's sales.
Société Générale analyst Alain William said the deal had a greater chance of success as Qatar is pivotal in the voting process.
“We also believe that other investors are now more aware that voting turnout count is vital for ensuring the deal succeeds. The merger still requires antitrust approval from the European Commission and China but we expect these approvals to be secured albeit probably with more remedies than anticipated by Glencore,” he added.
William felt that a potential disposal of zinc smelting operations and/or an end to zinc off take agreement with Belgium’s Nyrstar maybe on the cards to smooth regulatory passage in Europe.
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