Shareholders in Xstrata dealt a blow to their board on Tuesday, ushering through a long-awaited $31-billion takeover by trader Glencore but vetoing a controversial executive pay plan that had been backed by the miner’s directors.
The snub prompted Xstrata’s current chairman John Bond, who will be chairman of the combined group, to announce he would step down once a replacement is found.
Tuesday’s complex series of votes in the Swiss lakeside town of Zug, taking over more than two hours, brought to an end years of on-off merger talks between Xstrata and its largest shareholder and almost a year of often tense negotiations, creating what both sides hope will be a mining and trading powerhouse.
The tie-up, on the cards after Glencore listed last year, still needs to receive antitrust approval from European and Chinese regulators, but now looks set to become the largest deal in the sector since Rio Tinto’s acquisition of Alcan in 2007.
Hours after Glencore’s shareholders overwhelmingly backed the deal, almost 79 per cent of Xstrata’s voting shareholders gave their support – but without a “golden handcuffs” deal the board had insisted was key to keeping key managers.
The plan had been publicly lambasted by institutional investors.
Qatar, which became kingmaker in the deal as Xstrata’s second-largest shareholder, had said it would back the main resolutions on the deal but would abstain on the retention, making it likely that vote would fail.
In the event, 78.4 per cent of shareholders voted against pay awards described by one critical investor, activist fund Knight Vinke, as “egregious”.
“Right now, there is $20-billion of your money invested in 20 projects and extensions. It is the Xstrata management team that is responsible for making sure these investments are made safely, soundly and profitably,” Mr. Bond told investors gathered for the votes.
But Mr. Bond, formerly chairman of Vodafone and HSBC, was brushed aside as shareholders threw out the pay plan. His resignation announcement came soon afterwards.
The deal is a victory for active investors, who secured change on both the terms of the deal, thanks to Qatar, and on the retention plan, initially a key condition for the deal.
Analysts and advisers have already begun focusing on the next steps for the miner and trader that, with its spread of assets from mines, to oil wells to farms and more ships than Britain’s Royal Navy, is expected to be a deal machine in frugal times.
Xstrata, whose growth over the last decade has been fuelled by deals, was set up with a $2.5-billion acquisition of Glencore coal assets. Glencore, for its part, joined the stock market last year with the intention of funding larger deals, including the bid for control of Xstrata.
“These companies have looked at doing significant acquisitions over the last year – the question is whether they buck the trend and provide more buoyancy in the industry,” Alexander Keepin, partner and co-head of mining at law firm Berwin Leighton Paisner said.
Glencore and Xstrata have already proved a bright spot for the nine banks, law firms and countless other advisers, who will share some $200-million as a result of one of the sector’s largest deals since Rio Tinto’s acquisition of Alcan in 2007.
Depending on the combined group’s final weighting, Glencore Xstrata could be the 13th largest company in Britain’s FTSE 100, representing more than 2 per cent of the blue-chip index.
It could also sell some non-core assets – not least Xstrata’s chrome and platinum, analysts say, and revise Xstrata’s portfolio of mining projects, some of which are ambitious greenfield mines that Glencore does not prioritize.
Glencore, Xstrata’s largest shareholder with a 34-per-cent stake, is offering 3.05 new shares for every Xstrata share.
Europe’s antitrust regulators are due to give their verdict by Thursday.
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