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 eleventh 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 following the merger, 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. It would combine Glencore's army of razor-sharp traders with Xstrata's global network of mines and employ a total of more than 100,000 people worldwide.
Xstrata chief executive Mick Davis will run the new group for six months, before handing over the reins to Glencore boss Ivan Glasenberg and leaving the company. In what had been a key sticking point that threatened to scupper an agreement between the two parties until the last minute, Xstrata has sought and received an assurance from Glencore that Mr Davis' boardroom seat will be handed to another of its managers when he leaves.
This will ensure that former Xstrata employees retain six seats at the top table, to Glencore's five. Both parties are thought to be confident that they have come up with a package that addresses enough of their investors' concerns to see them vote in favour of the transaction.
However, with relatively little investor opposition needed to scupper the merger, and shareholders that have proved tough negotiators so far, there can be no certainty they will pass the deal.
Xstrata and Glencore have opted to implement the merger using a scheme of arrangement, which requires agreement from 75 per cent of shareholders — as opposed to a typical offer procedure, which needs only 50 per cent. Glencore already owns 34 per cent of Xstrata, and will be unable to vote its holding on the deal. As a result, only 16.4 per cent of Xstrata's shareholders need to vote against the deal to block it.
Today's agreement will be the second Glencore and Xstrata have reached on what is essentially the same transaction. Initially, they announced a "merger of equals", with Glencore paying Xstrata shareholders 2.8 of its shares for each of theirs. Under that arrangement, Mr Davis was due to take the top job, with Mr Glasenberg lined up to be his deputy. Mr Davis was also entitled to a £29m retention bonus, under the original deal. As with his colleagues at Xstrata, the payout was in cash and was unrelated to the company's performance.
This incensed shareholders so much that Xstrata revised the terms of the retention payments, linking them to performance and switching them from cash to shares. However, that was not enough to satisfy investors, who insisted that Glencore's offer undervalued the business, and pledged to vote against the deal. Glencore responded by sweetening its offer as part of a revised deal which also stipulated that, after six months, Mr Glasenberg – rather than Mr Davis – would run the combined entity.
The elevation of Mr Glasenberg raised a few smiles in the City among those who had questioned how the famously controlling boss of Glencore would handle being a deputy – even if it was of the equally strong-willed Mick "the Miner" Davis. Both companies declined to comment,
Tug of war: how it turned out at the top
Mick Davis, the chief executive of Xstrata, will run the new group for six months, before handing over the reins and leaving the company
Glencore sweetened its offer with a revised deal which also stipulated that Ivan Glasenberg, the Glencore chief, would run the combined entity