XSTRATA is to recommend shareholders vote in favour of a #20.5 billion ($31.9 billion) sweetened takeover offer by Glencore International after revising the voting structure and winning assurances it will have a majority of the board.
Xstrata, the largest exporter of coal used by power stations, will make changes to secure the loyalty of top managers and balance investor demands, in order to create the world's fourth-largest mining company, according to a person familiar with the deal, who asked not to be identified as the talks are private.
Glencore last month raised its offer to 3.05 of its shares for each one in Xstrata from 2.8, after investors said the original bid undervalued the Swiss mining company.
Glencore invited Xstrata to propose changes to the bonus package to ensure shareholder backing for the year's biggest takeover.
The retention payments total #144 million, excluding the #28.8 million bonus for the Xstrata chief executive, Mick Davis, who will not qualify for it, according to the person close to the deal. Davis will receive a contractual termination fee of about $US13 million ($12.5 million) when he leaves, the person said.
The source wouldn't elaborate on the changes to the offer before an official announcement, due tomorrow. The revised bid stipulates Davis lead the merged company before handing over to his Glencore counterpart, Ivan Glasenberg, within six months. Spokesmen from Xstrata and Glencore declined to comment yesterday.
According to Glencore's original February 7 bid, Xstrata shareholders were required to cast their votes on the merger and on the corporate governance structure, which includes the retention bonuses.
The merger plan requires 75 per cent approval by the shareholders, while the retention package can be passed with 50 per cent in favour. Both votes must pass for the deal to proceed, according to the original offer. Investors, including Blackrock Inc, have asked the Xstrata directors to name the executives who would receive the bonuses and justify the payment to each individual, or make the vote unconditional for the deal.
Some large shareholders are threatening to vote against the merger if the vote to retain the managers doesn't remain conditional, according to the source close to the deal and another familiar with the talks, who also declined to be named.
Xstrata has also received assurances from Glencore that one of its executives will replace Davis on the combined board, the first source said. Xstrata will hold six seats on the 11-member board.
The talks, which were extended last week, are one of the final stages in an almost eight-month effort by Glencore to seal the deal.
The sweetened bid followed a threat by Qatar's sovereign wealth fund, Xstrata's largest holder after Glencore, to block the deal in the absence of a higher offer.
Qatar Holding LLC said in June that a bid of 3.25 shares would be "more appropriate".
A vote as small as 16.5 per cent of investors can prevent the merger because Glencore can't use its 34 per cent stake.