Xstrata, Glencore make bumpy progress toward mega-merger

At a shareholder meeting held Nov. 20, Xstrata plc‘s shareholders other than the shareholdings in the company represented by the Glencore Group approved the proposed all-share merger of Xstrata and Glencore International plc.

The merger will proceed, subject to outstanding regulatory approvals and United Kingdom court approval, but a disputed Revised Management Incentive Arrangements deal will not be put in place to retain key Xstrata operational and functional management.

Xstrata Chairman Sir John Bond said in a Nov. 20 statement: “We welcome shareholders’ support for the merger with Glencore today, which underlines the sound strategic rationale for a combination of the two companies. It is our judgement that retention arrangements served the interests of shareholders by mitigating the risk of losing the management team that built Xstrata and who would be fundamental to the group’s future success. Xstrata’s board put in place a scheme of arrangement and voting structure that empowered non-Glencore shareholders to determine how and whether the merger would proceed and today, our shareholders have voted to approve the Merger without supporting the retention arrangements.”

Bond added: “The immediate focus of Xstrata’s board and management team is on the successful completion of the Merger and we remain committed to delivering the outcome that shareholders have approved today. I have said consistently that I would do what is in the best interests of the company. In the light of shareholders’ decision not to support the board’s recommendation, I have informed the Xstrata plc board and Glencore’s current chairman that, once the Merger has completed, I intend to instruct the board to commence an orderly process to appoint a new independent Chairman of Glencore Xstrata plc. Upon the satisfactory conclusion of the search process, overseen by the Glencore Xstrata plc board nominations committee, I will step down.” 

Mick Davis, Xstrata CEO, said: “I have been privileged to lead a team of exceptionally talented and capable managers over the past ten years. Together we have created one of the world’s leading mining groups from inauspicious beginnings and delivered enormous value to all of our shareholders, including Glencore. The corporate culture, values and world-class portfolio of assets and growth projects we have developed over that time are a source of pride and will make a significant contribution to the combined company. Glencore Xstrata has the potential to become a very significant company in the resources world and Xstrata’s people will be a critical element of this success. I regret the decision of shareholders not to approve these retention arrangements for the members of my senior and operational management deemed crucial to the success of the combined group as, in my view, this introduces unnecessary risks to the merged company’s future value proposition. Shareholders, however, have spoken clearly and we respect their views. I would like to thank my senior team for the professionalism they have shown over the past ten years in running our operations and delivering our major growth projects as efficiently and safely as possible.”

Merger control approvals have been obtained from the majority of relevant antitrust and regulatory authorities. Only three approvals remain outstanding – those of the European Union, China and South Africa. The European Commission Phase I review process will terminate on Nov. 22.  At the end of the Phase I period, the European Commission may: approve the merger unconditionally; approve the merger subject to commitments in relation to the Combined Group offered by Glencore and accepted by the European Commission; or conclude that it has serious doubts as to the merger’s compatibility with the common market and therefore refer the case to an in-depth Phase II review.

“The Merger will lapse if Glencore invokes the relevant condition as a result of either the merger or any matter arising from it being referred by the European Commission to a Phase II investigation, or as a result of the Merger being approved by the European Commission on terms (including as to remedies) which are not reasonably satisfactory to Glencore,” Xstrata noted.

Xstrata is one of the top five global producers of copper, thermal and metallurgical coal, ferrochrome, zinc and nickel and we also produce silver, lead, platinum, gold, cobalt and vanadium. Founded in 2002 and headquartered in Switzerland, Xstrata operates in over 20 countries. Its projects include a major coal strip mine development in British Columbia, Canada. It also owns one third of the Cerrejon strip mine in Colombia.

Glencore, headquartered in Baar, Switzerland, is one of the world’s leading integrated producers and marketers of commodities. Its direct coal interests include the Prodeco coal mining operations in Colombia, and it third-party trades a lot of coal on the seaborne market. It also already owns 34% of Xstrata.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.