x Abu Dhabi, UAEWednesday 26 July 2017

Xstrata and Glencore shareholders back $67bn mega merger

Xstrata shareholders have voted in favour of a $67bn merger with Glencore, sealing the biggest ever takeover deal in the commodities sector.

Demonstrators wearing giant fake eyes hold a protest during a meeting of shareholders in commodities giant Glencore. AFP PHOTO / FABRICE COFFRINI
Demonstrators wearing giant fake eyes hold a protest during a meeting of shareholders in commodities giant Glencore. AFP PHOTO / FABRICE COFFRINI

Xstrata shareholders have voted in favour of a US$67billion (Dh246.11bn) merger with Glencore, sealing the biggest ever takeover deal in the commodities sector.

The company said that 78.88 per cent of shareholders had opted for the merger at a vote held in the Swiss town of Zug.

The decision ends a 10-month effort by Glencore to clear the way for the combination of the trading house and Xstrata, a copper, coal and nickel miner.

Glencore shareholders had overwhelmingly voted for the deal earlier in the day. At that meeting, also held in Zug, 99.42 per cent supported the merger in a vote that took only 12 minutes.

The Xstrata vote raised concerns over the future of the new entity, however, as a retention package for the miner's top level executives was not voted through.

Investors baulked at agreeing to a $223 million "golden handcuffs" package designed to keep Xstrata managers in place during the difficult integration period of the two Anglo-Swiss companies.

Under the merger deal, the Xstrata chief executive Mick Davies will leave the new company within six months, and his top lieutenants may now follow.

The new entity is still seeking regulatory approval. Glencore has offered to sell Xstrata's German zinc smelter to alleviate concerns by the European Commission over a monopoly in the market. The commission had rejected an initial proposal by the trading house as insufficient.

Glencore Xstrata, as the new company will be known, will be headed by Glencore's chief executive Ivan Glasenberg.

He fought hard to push through the deal, and had to amend the initial bid after opposition from the sovereign wealth fund Qatar Holding - Xstrata's second largest shareholder after Glencore - and other investors in the miner. Shareholders will now receive 3.05 shares in the new entity for every Xstrata share.

Qatar Holding decided to abstain from a vote on the retention package, a move analysts say predetermined the vote against a payout.

Because of the deep unpopularity of the package among Xstrata shareholders, a complex voting structure had been put in place, in which investors could vote for the merger with the package, without the package, and on the incentive proposals themselves.

Only 69 per cent of shareholders voted in favour of the deal plus the retention package, less than the three quarters majority needed to pass the payments.

Aabar, the Abu Dhabi investment fund that is a unit of state-owned International Petroleum Investment Company, owns 1.4 per cent in Glencore.

The investor recently wrote off more than $322m of its $1bn investment in the trading house, without citing reasons. Aabar became the largest new shareholder in Glencore when the company went public two years ago.

fneuhof@thenational.ae