Xstrata and Glencore agree deal for £56bn merger

After weeks of arguments involving numerous twists and turns, Xstrata and Glencore have finally agreed to proceed with a £56bn merger that would create a game-changing mining and commodities trading giant.

Xstrata will announce today that it has ironed out crucial differences with Glencore over the composition of the combined board that would result from the proposed merger. It will also recommend the deal to its shareholders.

The agreement was clinched just hours before today's 7am deadline that the Takeover Panel imposed on Xstrata to strike a deal with Glencore or walk away. The deadline had already been pushed back by a week at the 11th-hour, after the two sides begged for more time to resolve their differences.

Under the terms of the deal due to be announced today, Glencore will give each Xstrata investor 3.05 of its shares for each one of theirs. About 70 senior Xstrata staff will collectively be entitled to as much as £140m of retention bonuses, to keep them at the group following the merger.

However, it was unclear last night how the two sides were going to treat the vote on those bonuses, which have proved controversial among key investors such as BlackRock and Legal & General, in part because Xstrata had pushed to make the deal contingent upon their approval.

As this morning's deadline loomed, executives at both companies were furiously debating whether to "decouple" the bonus vote from the main vote on the deal. Such a move would have the advantage of making the merger more likely to go through, since opposition to the payouts would not be able to derail the broader agreement.

But Xstrata's top executives are keen to link the votes if they can, to ensure they retain as many good staff as possible, while the payments would significantly boost their personal income. The deal would create a hugely powerful mining and trading group, exerting a powerful grip on many of the basic ingredients of people's lives, from wheat and corn to coal and iron ore.

Under the agreement, Xstrata chief executive Mick Davis will run the group for six months, before handing over the reins to Glencore boss Ivan Glasenberg and leaving the company.