Reuters: Mergers News: UPDATE 2-Xstrata CEO set for $46 million package to stay on

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UPDATE 2-Xstrata CEO set for $46 million package to stay on May 31st 2012, 18:15 Thu May 31, 2012 2:15pm EDT * Glencore $30 bln all-share bid for Xstrata confirmed in documents * Glencore shareholders to vote on July 11 * Xstrata shareholders vote on July 12 * Xstrata, Glencore to pay almost $200 million for advice By Clara Ferreira-Marques LONDON, May 31 (Reuters) - Xstrata Chief Executive Mick Davis will get a three-year deal worth almost 30 million pounds ($46 million) to stay at the helm once the miner joins forces with Glencore, a windfall likely to anger some of his shareholders. In a document sent to investors on Thursday detailing the terms of the long-awaited $30 billion takeover bid by trader Glencore, Xstrata said retention deals for 73 of its key employees would total more than 170 million pounds. All managers and senior executives other than Davis will be offered two-year packages to stay on after the all-share merger is completed in the third quarter of this year, as Xstrata seeks to hold on to its operating expertise. Davis, a veteran miner, is well respected as the architect behind Xstrata, a mining powerhouse largely created over a decade. Yet the payments, particularly the sum offered to Davis - already one of the best-paid chief executives in the FTSE 100 - are fomenting discontent among some minority investors. And they are likely to be the focus of a charm offensive by both companies ahead of July votes on the deal. "Mick has made shareholders money at Billiton and Xstrata, but he has been well paid for that. In these austere times, the 30 million pounds for nothing seems gratuitous to me," said one top-40 Xstrata investor. More than a third of voting shareholders rejected pay plans at Xstrata's annual meeting earlier this month, amid a broader "shareholder spring" that has shaken up UK-listed companies with pay protests and claimed high-profile scalps. But Xstrata warned its shareholders that the retention payments were "key" to the success of the merger, and that it would be impossible to back the merger without backing the windfalls for its key employees. "These arrangements depend upon retaining the core senior management of Xstrata, given that more than 80 percent of the combined group's income will be derived from its operating assets, and are the reason why the retentions were provided for as part of the transaction," the group said in a statement. The long-awaited tie-up between Glencore, the world's largest diversified commodities trader, and Xstrata, of which Glencore already owns almost 34 percent, will create a mining and trading powerhouse, with more than 100 mines and an oil division with more ships than Britain's Royal Navy. But Glencore's traditional trading activities will account for just a fifth of profit. POWERHOUSE Minority shareholders matter greatly, as the structure of the deal means just over 16.5 percent of Xstrata's shareholder base would be enough to sink it. Since February, however, the sovereign wealth fund of Qatar has been building a stake in Xstrata and now owns more than 9.5 percent. Analysts and investors say that is likely to prove positive for Glencore and has helped lessen expectations that it will have to improve the share-swap ratio. "Given markets and Qatar's stake, a change in ratio was growing unlikely," the investor said. Documents sent out to investors on Thursday, which also include Glencore's prospectus for the issue of new shares, confirmed Glencore's offer of 2.8 new shares for every Xstrata share held. Glencore and Xstrata have long been expected to tie the knot, but the two sides will be paying as much as $200 million in fees to advisers, from banks to public relations consultants and lawyers. Banks alone will receive up to $130 million. Glencore is being advised by Citigroup, Morgan Stanley, Credit Suisse and BNP Paribas. Xstrata is being advised by Deutsche Bank, JP Morgan, Goldman Sachs and Nomura, with a role also for Barclays Capital. Both sides were advised by an independent consultant, former Citi banker Michael Klein, who shuttled between executives to broker the deal. Link this Share this Digg this Email Reprints

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