It looks like the much talked-about XCore/GlenStrata merger could be back on, after Xstrata’s board recommended that its shareholders get behind the latest merger proposals. The green light was given just in time for this morning’s deadline – set by the City’s takeover watchdog. So it’s all systems go to create one of the largest natural resources companies on earth, but what are the remaining hurdles?
Well, mainly, it’s Xstrata’s major shareholder the Qataris. Just one month ago, it looked like the deal had come off the rails because they suddenly demanded more lucrative terms from the deal, prompting Glencore boss Ivan Glasenberg to get hard-nosed about it. He said it was ‘not a must-do deal’, and seemed to suggest (rather improbably) that it wouldn’t matter to him if the deal didn’t go through at all. Things went quiet for a couple of weeks (Glasenberg obviously trying to call Xstrata’s bluff), before he offered slightly improved terms for the merger, and made clear that it was his final offer.
Another issue is pay and bonuses. Part of the proposed deal includes a retention package worth £227m to keep top Xstrata managers on board. Naturally, shareholders are a bit jittery about such large amount of cash lining the pockets of executives, but bosses insist it is necessary to make the merger a success. Furthermore, the Qataris thought the original deal had undervalued Xstrata. Again, playing hardball, Glasenberg’s latest proposals gave a better price, but asserted that he would displace current Xstrata boss Mick Davies in the merged company.
There is now talk of shareholders being given two separate votes – one on the merger itself and another on pay packages – before the deal can go ahead. But Xstrata has confirmed that Davis will step down from his post in the combined group, taking home around £36m in various types of payout. This makes room for Glasenberg to step up and suggests that the wheels are now finally in motion.
It is worth noting that many believe the commodities market is slowing down a bit, and since this merger has been on the table for almost 18 months, the market has left the deal behind to a certain extent. No-one doubts that commodities will accelerate again, but these two firms have been dancing around each other for so long that the market conditions the merger was designed to cash in on have changed since the first proposals.
As always the nitty-gritty of the deal still has to be sorted by lawyers, and the European Commission has to give regulatory assent to the deal before it can go ahead. With Xstrata’s share price rising 1.6% this morning, we get the sense that this saga of a deal could finally come off…