After months of speculation, the mining and commodity giants Xstrata and Glencore have finally revealed just how much they want to keep Mick Davis running the combined show following their merger – £28.8m.
That is the amount Xstrata's chief executive, Mr Davis, is being paid simply to stay as the head of the newly merged entity for three years if the £57bn deal is completed.
The company is paying out more than £170m in total to retain 73 key staff, with managers other than Mr Davis being offered two-year retention deals. The figures emerged as part of the prospectus detailing the merger that was sent to shareholders yesterday.
The sheer size of the payment will fuel speculation that the deal may fail to receive the shareholder backing it needs at the extraordinary meeting next month. "Details of the retention package may prove to be controversial amid heightened sensitivity over pay and performance... the deal has a realistic chance of failing," analysts from Jefferies Group said in a note.
But Xstrata insisted the payments are key to the success of the merger, which will create a mining and commodities powerhouse, rankingas the world's fourth biggest minerafter BHP Billiton, Rio Tinto andBrazil's Vale.
"These arrangements depend upon retaining the core senior management of Xstrata, given that more than 80 per cent of the combined group's income will be derived from its operating assets, and are the reason why the retentions were provided for as part of the transaction," the company said.
Mr Davis is already one of the best-paid FTSE 100 chief executives, taking home $5.4m last year in salary, cash bonus and benefits. This excludes long-term incentives, deferred bonuses and retirement benefits.
Having led Xstrata for a decade, Mr Davis has transformed the company from a $500m coal miner to a diversified miner worth about £27bn, and is seen as a steady hand by his company's shareholders.
However, 40 per cent of investors failed to back Xstrata's remuneration report earlier this month, which could be a sign that investors are growing wary of Mr Davis' pay deals, despite the company's strong performance.
Relatively little opposition is needed to scupper the transaction. This is because Xstrata and Glencore have opted to implement the merger using a scheme of arrangement, which requires agreement from 75 per cent of shareholders rather than the usual 50 per cent. Furthermore, 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.
The prospectus yesterday confirmed that under the so-called merger of equals – which most view as a takeover of Xstrata by Glencore – Xstrata investors would receive 2.8 shares in Glencore for each of theirs in Xstrata. Glencore's chief executive, Ivan Glasenberg, will take up the role of deputy chief executive of Glenstrata.
It also reveals that the banks, lawyers and PR advisers working on the deal will receive $200m in fees.
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