The revised offer removes the latest stumbling block to the multibillion-dollar deal by decoupling the merger from a contentious retention package for senior executives.
Glencore first proposed a bid for the Australian miner in February, which was roundly rejected as too low by Xstrata shareholders. It upped the ante last month, raising its bid to 3.05 of its shares per Xstrata share, which values the takeover price at US$33 billion (Dh121.2bn).
The combined entity would produce a market capitalisation of nearly $70bn and the deal would be the second-biggest merger in the mining sector after Rio Tinto's $38bn purchase of Alcan in 2007.
The takeover battle has drawn in prominent Arabian Gulf investors.
Qatar Holding, a state investor that owns a 12 per cent stake in Xstrata, was instrumental to the improved bid, having threatened to veto the deal if the price was not raised.
Qatar Holding is also in favour of paying Xstrata executives £173 million (Dh1.02bn) to remain at the company, a clause that was met with stiff resistance from other investors, among them the miner's second-largest shareholder, Blackrock, based in London.
Proponents of the retention package believe it guarantees stability after Glencore announced it wanted its chief executive, Ivan Glasenberg, to lead the combined entity, rather than Xstrata's chief, Mick Davis.
The new merger proposal, released by the Xstrata board after three weeks of consultation with shareholders, allows them to vote in favour of the takeover without voting for the payouts.
"It's certainly a step in the right direction," said Peter Rudd, a manager at Altitude Private Wealth in Melbourne. "Whether it's sufficient remains to be seen."
The board yesterday recommended the retention package be kept as part of the dealbut a £29m payout to Mr Davis has been reduced to about £10m.
The merger needs the approval of 75 per cent of Xstrata shareholders, while 50 per cent must vote in favour of the retention packages.
As Glencore, with a 34 per cent stake in the miner already, is not allowed to cast its vote, a bloc of less than 15 per cent of the remaining votes could scuttle the merger. A shareholder vote could be called within a month, a source told Bloomberg News.
Aabar, the Abu Dhabi-owned investment vehicle, became the largest cornerstone investor in Glencore during its initial public offering last year, buying shares worth $1bn.