Xstrata has bowed into pressure from angry investors and announced that retention awards for management as part of its merger with Glencore will paid in shares instead of cash and will be subject to their future performances.
That means that Chief Executive Mick Davis's £173m "retention package" will be paid entirely in shares. The performance criteria linked to the awards for all directors will be based on realising additional cost savings as a result of the merger in the two years following the merger, expected to complete in early October.
Xstrata reassured that it is looking to achieve $300m of incremental cost savings over two years which will exceed the cost of the retention awards.
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"Xstrata's executive management and Independent non-executive directors are sensitive to the perspective and concerns of our shareholders in the current environment and we have listened to the feedback we have received since publishing the merger documents. These amendments now allow shareholders to focus on the strategic rationale for the merger, which the independent non-executive directors continue to support," said Chairman Sir John Bond in a statement on Wednesday afternoon.
"The independent non-executive Xstrata directors are convinced that the merger with Glencore is in the interests of all Xstrata shareholders and will provide the best platform for value creation in the future," he said.
He said that the merger has always consisted of three "inseparable and interdependent elements" - the merger ratio, the governance/management structure and management retention arrangements. He said that retaining Xstrata's "proven" management team is essential for the success of the merger as they will be responsible for over 80% of the combined group earnings, 150 mining and metallurgical assets and 20 major growth projects.
"We would not have recommended the merger on its current terms without arrangements to secure Xstrata's management team in the critical initial years of the combined group's life. Consequently, the passing of the resolutions to approve the merger and the management incentive arrangements are inter-conditional."
Xstrata's second biggest shareholder with a 10.4% stake, Qatar Holdings, announced in a surprise statement on Tuesday night that while it sees "merit in a combination of the two companies, it is seeking improved merger terms".
It demanded a better deal than the current '2.8 new Glencore shares for every Xstrata share'. It said an exchange ratio of 3.25 per share "would provide a more appropriate distribution of benefits of the merger."
After falling into the red early on, shares in Xstrata were up 1.37% at 796.6p by the close on Wednesday, as investors celebrated the news. Glencore on the other hand, finished the day down 1.45% at 298.3p.
BC
