--Xstrata says 17.6%-22% premium is significantly lower than
what would be expected in a takeover
--Replacement of Xstrata CEO and change in management-incentive
package represents "significant risk"
--Xstrata seeks more clarity from Glencore on merger
proposal
--Liberum Capital says Xstrata board unlikely to recommend offer
despite Standard Life's support of improved terms
LONDON--Anglo-Swiss miner Xstrata PLC (XTA.LN) said Friday the
revised offer outlined by Glencore International PLC (GLEN.LN)
represents a significantly lower premium than would be expected if
the deal were to be considered a takeover rather than a merger,
signaling that the new offer may still fall short of approval from
Xstrata's board.
Commodities titan Glencore attempted to salvage its deal from
likely collapse Friday by increasing its offer to 3.05 Glencore
shares for every Xstrata share just as shareholders from both
companies were due to vote on the deal. The deal was largely
expected to fall apart after Xstrata's second-largest shareholder,
sovereign wealth fund Qatar Holding LLC, said it would vote against
the original 2.8-share swap ratio on grounds that the premium
wasn't enough.
The independent directors of Xstrata said Friday the latest
proposal "lacks sufficient information on key elements," which
prompted them to send a written letter to Glencore asking for
clarification.
Xstrata's independent directors noted that the revised
share-swap ratio represents a 22% premium to Thursday's closing
share price and a 17.6% premium to the undisturbed Xstrata share
price Feb. 1, the day before news of talks between the two began to
surface. They noted, however, that this is "significantly lower
than would be expected in a takeover."
Glencore and Xstrata's plan to create a mining behemoth, with a
market capitalization of more than $70 billion, based on current
share prices, faced strong opposition from shareholders including
Qatar Holding, Knight Vinke and Standard Life.
The new proposal contains a condition that aims to give Glencore
the ability to structure the transaction as a takeover offer
instead of a recommended scheme of arrangement, a power that
currently resides with Xstrata.
Such ability to switch the transaction to a takeover from the
current merger-of-equals scheme would lower the shareholder
vote-approval threshold to 50% from 75%, thereby making it easier
for Glencore to secure Xstrata's shareholder approval for the
deal.
Under the current merger of equals, Glencore, Xstrata's largest
shareholder with a 34% stake, isn't allowed to vote, but under a
takeover structure, it would be allowed to vote on such a
transaction.
Xstrata also said Glencore's new proposal to install its chief
executive, Ivan Glasenberg, as CEO of the combined company--he was
to become deputy CEO under Xstrata chief Mick Davis--and amend the
management-incentive arrangements "represents significant risk" in
terms of retaining Xstrata's senior and operational management, who
are set to be responsible for assets that generate about 80% of the
combined group's earnings, according to the original terms of the
deal.
Standard Life Investments, which initially opposed the deal,
said in a statement Friday it was supportive of the improved terms.
"We are pleased with the proposed outcome," said David Cumming,
head of equities at Standard Life.
But a top-30 shareholder who wished not to be named because he
was still digesting the news said, "There are still too many
unanswered questions" about the revised offer, including whether
the new proposal is a merger or a takeover. He said if it is a
takeover, he would have to consider carefully the premium being
offered and said there are questions about what would happen to
Xstrata's Davis under the new structure.
"It looked pretty clear to me [from the beginning that]...Ivan
was going to be running the show, but what it means for Mick," now
that Mr. Glasenberg will be the new CEO of the combined entity,
remains to be seen, he said.
Mining analyst Richard Knights of Liberum Capital said he
doubted Xstrata's board would recommend the offer.
"It looks unlikely that Xstrata's board will recommend
Glencore's revised offer based on the statement they released," he
said.
Glencore's shares closed down 3.6% at 378 pence a share, while
Glencore's shares closed up 3.6% at 1,014 pence a share.
Ian Walker contributed to this article.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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