Xstrata CEO offered $ 46 million to stay

LONDON: 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 trader Glencore, a windfall likely to sow a shareholder storm at votes due in July.
In documents sent to investors detailing the terms of the long-awaited $30 billion takeover bid by trader Glencore, Xstrata said it would pay retention deals to 73 of its key employees totalling 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, as Xstrata seeks to hold on to the operating expertise that built the miner up over a decade.
Davis, an industry veteran, is well respected as the architect behind Xstrata, a mining powerhouse built from the purchase of Glencore coal assets in 2002. The current plans have him remaining as chief executive of the combined group, with Glencore's Ivan Glasenberg as deputy chief executive.
Yet the payments, particularly the sum offered to Davis — on top of an annual salary that already makes him one of the best-paid chief executives in the FTSE 100 — are fomenting discontent among some minority investors, as both Glencore and Xstrata prepare for a final charm offensive ahead of votes in July.
"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.
Xstrata, however, warned its shareholders that the retention payments were "key" to the success of the merger, and that it would be impossible to back the deal on July 12 without backing the windfalls to secure its key employees.
"The retention arrangements are intended to secure the transition of the company's leadership, whose stability has been integral to Xstrata's success over a decade and who are essential to the merger structure and achieving the potential of the merged company," Xstrata Chairman John Bond said.
The 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.
Glencore's traditional trading activities, though, will account for less than a fifth of profit, making the operating assets, from mines to smelters and concentrators, key.
Davis would be set next year to receive over 19 million pounds in retention pay, plus salary, bonus and benefits — as well as a deferred award of shares worth as much as 6 million pounds, as part of a performance scheme, subject to meeting targets over 3 years. So Xstrata may have some convincing to do as Davis hits the road for a final round of investor meetings.
Minority shareholders matter greatly, as the structure of the deal requires approval from 75 percent of voting shareholders excluding Glencore, which means just over 16.5 percent of Xstrata's shareholder base could sink the deal.
Since February, however, Qatar has been building a stake in Xstrata and the state's sovereign wealth fund 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.
Documents sent out to investors confirmed Glencore's offer of 2.8 new shares for every Xstrata share held.
"Given markets and Qatar's stake, a change in ratio was growing unlikely," the top-40 investor said.
Glencore and Xstrata, connected from Xstrata's very start as a Swiss infrastructure investment company, have long been expected to tie the knot, but the two sides will 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 also advised by former Citi banker Michael Klein, who shuttled between executives to broker the deal.
The next step for the miner and trader is to file merger documents with the European Union and set the regulatory clock ticking. They said current, pre-notification, discussions with Brussels, which aim to avoid a lengthy and potentially bruising regulatory probe, were "progressing well".
The deal is set to complete in the third quarter.