By Alex MacDonald
NEW YORK--Xstrata PLC's (XTA.LN) ninth largest shareholder, U.K.
investment fund Scottish Widows Investment Partnership Ltd., said
it was dismayed but not surprised that Xstrata's chairman, Sir John
Bond, has decided to quit his position as chairman of the combined
company once the merger with Glencore International PLC (GLEN.LN,
0805.HK, GLNCY) has closed and a new chairman has been
selected.
"We are very disappointed but not surprised at the decision of
Sir John Bond to step down as Chairman," Anne Fraser, SWIP's head
of corporate governance, said in a statement. "Sir John's
experience enhanced our confidence in the new board and the group's
corporate governance structure. We will of course work with the new
board as it starts the process to identify a successor," she
said.
SWIP owns a 1.14% stake in the Zug, Switzerland,-based mining
company.
Glencore and Xstrata have been seeking shareholder and
regulatory approval 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. The
deal still needs regulatory approval from the European Union, China
and South Africa to close, but analysts and investors expect
Glencore to make any necessary concessions to secure antitrust
approval.
The deal moved a step closer to completion Tuesday when
Xstrata's shareholders voted to approve the deal but overwhelmingly
rejected Xstrata board's recommendation to approve more than 140
million British pounds ($220 million) in retention payments. The
proposed payments were intended to retain some 70 Xstrata managers
who were considered critical to the success of the combined
company, Glencore Xstrata PLC, given that they would be responsible
for more than 80% of the combined company's earnings.
The rejection of the package made Mr. Bond's position as
chairman of the combined company untenable, said Jane Coffey, fund
manager at Royal London Asset Management who was in favor of the
revised deal but against the retention packages. "We're not
particularly happy with the way the board conducted itself during
the merger," she added.
Ms. Coffey noted that the board failed to champion minority
shareholders' interests, as evidenced by the fact that shareholders
managed to get Glencore to increase its offer to 3.05 share swap
ratio after Xstrata's board said 2.8 was the best possible offer it
could extract from Glencore.
Xstrata's board then consulted with shareholders twice on the
controversial retention packages. After the first consultation, the
board tweaked the payments to include performance targets, which
some shareholders said they still felt was insufficient. After a
second consultation, Xstrata's board then decided to decouple the
merger vote from the retention package in order to gain shareholder
approval.
Ms. Coffey said "I wouldn't be surprised if more board members
would want to leave," following the rejection of the retention
package. RLAM isn't pushing for such a change, she noted, adding
that Xstrata still needs a strong board to make sure the deal
closes.
Ms. Fraser of SWIP on the other hand said she was delighted that
the deal was approved but dismayed the retention packages weren't
approved. SWIP favored the deal being approved with the retention
packages.
"Despite the outcome of the vote on the management incentive
arrangement, retention risk will still have to be managed and any
unapproved arrangement will offer less transparency and
accountability to shareholders than an approved scheme."
Two people familiar with the matter said the management of the
combined company could still seek to put together a retention
package once the deal has closed in order to retain key staff.
Jeff Largey, a mining analyst at Macquarie Research, said "I
don't think you will see mass departures" from the combined
company. "There is clearly a path to wealth creation ... by
staying" at the combined company, he added. Both Xstrata and
Glencore have a track record of rewarding their executives well for
strong performance. Nevertheless, he said there was some risk
managers might leave as other large miners such as Anglo American
PLC (AAL.LN, AAUKY) consider restructuring their managements.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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