Incentives key to Glenstrata tie-up
THE fate of Glencore’s £23bn takeover of Xstrata could hinge on incentive payments designed to ensure that its most talented managers are prepared to work for Ivan Glasenberg.
Qatar Holding, which used its 12pc stake to block a merger, is by no means certain to accept the new takeover bid of 3.05 Glencore shares for every one of Xstrata’s.
If the emirate’s sovereign wealth fund can live with the price, it is expected to seek assurances that Xstrata’s highly-rated management team will remain substantially unchanged. Glencore’s proposal has sparked unease because it involves respected boss Mick Davis handing over to Glasenberg after six months.
People familiar with the Qataris’ thinking said they valued Davis and would be wary of any proposal that sees him drummed out of the company in exchange for a bit more money.
But if Davis agrees to step down of his own accord, in a move that could see him get a £8m pay-off and cash in £30m in shares, Qatar would still want to ensure that his team of senior staff remain.
The issue of retention is particularly important because Qatar would be paid with shares in the new company, meaning it has a long-term interest in ensuring staff who began Xstrata’s huge stable of developing projects see them through.
Some 80pc of the new company would be made up of mining assets, which City analysts agree would be better managed by Xstrata than by Glencore (down 8.05p to 370p), whose expertise lies in trading commodities.
Xstrata’s board will now gauge shareholder opinion on the price, Davis’ position and the incentive agreements, before deciding whether to recommend the offer.
An incentive scheme attached to the initial merger plan had to be overhauled to include performance targets payments made in shares, after investors slammed plans to pay 73 staff a combined £172m just to stay on.
The incentive scheme is not expected to change substantially, unless staff make it clear they will not work in a company controlled by Glencore without a better deal. Glasenberg is understood to be confident that his arrival in Davis’ office will not spark an exodus. Xstrata chairman Sir John Bond is also under pressure from 0.5pc shareholder Knight Vinke to solicit a rival bidder such as Brazil’s Vale, which failed with a bid in 2008.
Glencore’s offer is worth £39bn, although economic turmoil has savaged mining share prices since then. Once Xstrata (up 12.5p to 1026.5p) has consulted its shareholders, it has until September 24 to accept or refuse Glencore’s new offer.