LONDON--Shareholders in commodities giant Glencore International
PLC (GLEN.LN) Tuesday voted overwhelmingly in favor of a merger
with Anglo-Swiss miner Xstrata PLC (XTA.LN), a deal that would
create the world's fourth-largest diversified mining company.
After securing the backing of 99.4% of Glencore investors, the
merger now requires the approval of Xstrata shareholders in a
series of votes scheduled to start at 1300 GMT. Both companies'
votes are taking place in Zug, Switzerland.
Xstrata shareholders were on track to reject the deal in
September, but analysts believe there is now sufficient support
after the terms of the deal were improved. However, there remains a
chance that opposition to a pay package designed to retain some
Xstrata managers could scupper the deal.
Glencore and Xstrata want to create a natural resources
juggernaut with a market capitalization of around $70 billion and
assets including coffee, grains, zinc, nickel, copper, coal, oil
and shipping. Xstrata's board has recommended that the deal be
approved only with payments totaling more than 140 million pounds
($220 million) to around 70 of its managers, who will be
responsible for running assets that will contribute more than 80%
of the combined companies' earnings.
The payments have attracted opposition from some large
shareholders who consider them excessive or lacking sufficient
performance targets, even after Xstrata revised them to include
performance targets for some executives and to pay them entirely in
shares, rather than the combination of cash and shares that was
initially proposed.
In order to prevent this opposition from derailing the Glencore
deal, Xstrata's board decided to decouple the merger vote from
approval of retention packages, meaning Xstrata shareholders will
cast three votes at the meeting in Zug.
In the first two votes, Xstrata shareholders will be asked to
vote on two resolutions: one approving the deal with the retention
packages, the second approving the deal without the retention
packages.
A third vote will then decide whether to approve the retention
packages. The outcome of that vote will determine which of the
first two resolutions should be discarded, thereby leaving
shareholders with one final outcome.
Glencore, Xstrata's largest shareholder with a 34% stake, isn't
allowed to vote on the deal.
Continuing nervousness about the approval of the merger centers
on a scenario in which the first resolution passes, but the second
and the third are rejected, effectively killing the deal.
The risk of this happening fell slightly last week, when
Xstrata's second-largest shareholder, the sovereign wealth fund
Qatar Holding LLC, said it would vote in favor of the first two
resolutions and abstain from the third.
The merger still needs approval from regulators from the
European Union and China to close, but analysts and investors
expect Glencore to make any necessary concessions in order to
secure antitrust approval.
Write to Alex MacDonald at alex.macdonald@dowjones.com and James
Herron at ja es.herron@dowjones.com
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