Glencore considers changes to Xstrata deal

[June 27, 2012]  LONDON (AP) -- Commodities trader Glencore International said Wednesday that it is considering changes in incentives for senior employees of Xstrata as a shareholder revolt over its proposed takeover of the mining company gathered steam.

The possible revision of the offer comes barely two weeks ahead of a shareholders vote on the deal and followed a demand by a Qatari investment fund for better terms for its 10 percent stake in Xstrata. It wants 3.25 new Glencore shares for each Xstrata share, significantly more than the 2.8 shares currently on offer.

The Financial Times reported Wednesday that the Qatari demand means that holders of about a quarter of Xstrata shares are opposed to the terms, enough to block the deal.

"There is now a material risk that the merger could fail with both management teams adamant that the current terms are fair and had only been agreed after extensive negotiations," said Myles Allsop, analyst at UBS.

Glencore shares were down 3.8 percent at 291 pence in morning trading in London, while Xstrata's share price fell 1.5 percent to 774 pence.

One aspect some shareholders have raised objections to relates to the retention provisions in the deal. In particular, concerns have been raised over a three-year, $45 million deal for Xstrata's chief executive Mick Davis, who is in line to become chief executive of the merged company.

In all, the deal calls for 73 senior employees of Xstrata to share in 173 million pounds of incentives to remain in their jobs.

Glencore said it had received a revised proposal from Xstrata "and will make a further announcement when appropriate."

When the deal was announced in February, two big fund managers -- Standard Life Investments and Schroder Investment Management -- said Glencore's offer undervalued Xstrata.

The Association of British Insurers also opposes the retention provisions.

Glencore, which has scheduled a general meeting of shareholders for July 11, already holds a 34 percent stake in the mining company. Xstrata shareholders are to vote on July 12.

Qatar Holding said the revised terms it is seeking "would provide a more appropriate distribution of benefits of the merger whilst properly recognizing the intrinsic stand-alone value of Xstrata."

Qatar Holding, like most Gulf sovereign investors, is not known for shareholder activism. But its decision to rapidly amass a stake in Xstrata in the past months suggested it wanted a bigger voice in the combined company, if not the merger process itself.

Many of its most prominent investments are in Europe. They include London's Harrods department store and stakes in Barclays PLC, Credit Suisse Group, Volkswagen AG, London Stock Exchange Group and French luxury conglomerate LVMH Moet Hennessy Louis Vuitton.

Qatar Holding has increasingly shown an interest in investing in natural resource businesses. Besides the Xstrata holding, it has been building stakes in European energy companies such as French oil giant Total SA, and last year invested in gold miner European Goldfields.

[Associated Press; By ROBERT BARR]

Adam Schreck in Dubai, United Arab Emirates, contributed to this story.

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