Giant mines merger set to fall through

Advisers to lose millions as Xstrata shareholders prepare to vote down £53bn deal with Glencore
  • @MLeftly

Investment bankers working on the troubled Glencore-Xstrata £53bn megamerger will lose almost £70m in fees if, as expected, the deal collapses this week.

Big name banks working on both sides of the merger, including Citi, Morgan Stanley, JP Morgan and Goldman Sachs, were expecting to share a success fee pot of up to £82m when the deal was finalised. However, it is thought they will receive around 10 per cent of that, after shareholder Qatar Holding, which has recently built a 12 per cent stake in Xstrata, confirmed plans last week to effectively torpedo the deal.

The Middle Eastern investment vehicle wants Glencore to improve the terms from 2.8 to 3.25 of the commodity giant's shares for every one of Xstrata's. Glencore's boss Ivan Glasenberg is unwilling to accept this, but the Qataris and another big shareholder, Norges Bank Investment Management, own big enough stakes to vote the offer down at a shareholder meeting this Friday.

Mr Glasenberg has been determined to push through the merger for years, a move that would have reunited the pair after Xstrata was spun-off a decade ago. Glencore still has a 34 per cent stake in the miner.

Xstrata's board has endorsed the move, with the Swiss-based company's chief Mick Davis and chairman Sir John Bond lined up to remain in the merged entity. Mr Glasenberg would have taken the deputy chief exec and president roles.

On Friday, the activist fund – and top 20 Xstrata institutional shareholder – Knight Vinke, called for a shake-up of its boardroom should the merger collapse. The investor said: "Should the transaction fail to be approved, we intend to consult other shareholders regarding the composition of the Xstrata board so as to make it more independent and robust."

A source close to the company suggested several ageing board members, notably sexagenarian non-executive directors David Rough and Sir Steve Robson, will departure in the next 12 months. Last year, PIRC, a corporate governance body that advises funds that own £1.5trn of assets, said shareholders should vote against their re-election as they had served for nearly a decade and could no longer be considered independent.

As well as the banks, lawyers, accountants and public relations firms were due to receive millions when the deal went through, but their fees will be less significantly reduced.

Reports this weekend suggest that Sir John Bond might be under pressure. Some shareholders believe he was willing to sell too cheaply.