The on-off mega-merger between commodities trader Glencore and mining group Xstrata is back on but shareholders have two key decisions to make: whether to back the merger and whether to vote for the massive 'pay to stay' bonuses to Xstrata directors.
Although Xstrata would prefer that shareholders vote in favour of both in order to ensure the retention of executive personnel at the mining, Monday's statement made it clear that some key investors were not happy about the pay deal element.
The new deal requires 75% of shareholders to support the merger, but only 50% need to vote in favour of the retention package, which has been reduced to £144m. Glencore, Xstrata's biggest shareholder holding 34%, cannot vote.
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There is still opposition to the takeover from institutional shareholders, despite the terms being revised last month, with Glencore offering 3.05 shares for each of Xstrata's - an increase from the 2.8 shares originally offered.
The Guardian reports that activist investor Knight Vale and Threadneedle Investments has attacked the deal and the payments to top Xstrata executives.
If successful, the merger will create a £49bn company with approximately 130,000 employees in more than 40 countries.
Broker recommendationsBrokers seem fairly clear, and positive, on how to approach this overly complicated matter.
Charles Stanley comments: "If the deal succeeds we would expect the shares of both Glencore and Xstrata to move ahead, although there might be downwards pressure should some Xstrata investors choose to sell."
It believes it will be voted through. Indeed, it recommends existing Xstrata investors vote for the first resolution (to approve the transaction only if the incentives are approved) and the ordinary resolution (on incentives).
It therefore maintains an 'Accumulate' recommendation on Xstrata and a 'Hold' recommendation on Glencore.
Jeffries states: "The Xstrata shareholder votes should take place in mid-November, and the deal should close by late 2012, early 2013. While Glencore and Xstrata shares may underperform for a short while after these votes, Glenstrata will be one of our top picks in the sector for the long-term."
CM
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