Glencore ponders changes to Xstrata deal as major shareholder demands better terms

Commodities trader Glencore International (LON:GLEN) said Wednesday that it is studying modifications to its $26 billion bid for miner Xstrata (LON:XTA), after Qatar's sovereign wealth fund, a key shareholder, unexpectedly opposed the deal's terms, including the controversial executive retention package.

The sovereign wealth fund of the gas-rich Middle East nation is the second largest shareholder with more than a 10% stake in the diversified coal and copper miner.

Reuters is reporting that the proposed changes involve linking pay to cost cuts through the new group.

Paul Lee, director of Hermes Equity Ownership Services, which is voting on behalf of around 1 percent of Xstrata's investors, said a simple bump-up in the ratio would not be enough to persuade them to back the deal.

"Xstrata to our mind has a pretty good record in risk management. That is less true of Glencore. Lots of investors are most troubled by the ratio and the retention packages, but they haven't really focused on this issue. The immediate question over price is pretty irrelevant in that context. (But) on the pay side, perhaps the board will have to assess where they are when they truly understand the depth of investor feeling. They have misjudged this quite significantly."

London-listed Glencore already owns 34% of Xstrata and is offering 2.8 shares for every one of Xstrata.

Xstrata is the world’s biggest exporter of thermal coal and the fourth-largest copper producer.  In a decade it has gone from having fewer than 2,500 employees to a workforce exceeding 70,000 in 20 countries.

A combined Xstrata and Glencore would have revenues in excess of $100 billion with as much as 80% of sales earned from mining.  A Glenstrata, as it has been dubbed, would become the 4th largest miner on the planet.