Sir John Bond dramatically resigned as chairman of Xstrata yesterday after investors backed the miner's proposed £56bn merger with Glencore but voted overwhelmingly to oppose £140m of retention bonuses he had sought to tie into the deal.
Sir John fell on his sword just half an hour after Xstrata revealed that 78 per cent of its shareholders had opposed the retention bonuses lined up for 70 of his staff, which he had insisted were key to the success of the enlarged group once the merger was completed.
Including abstentions, about 87 per cent of Xstrata's shareholders failed to back the controversial bonuses, which Sir John had initially said were so important that he made the deal contingent upon their approval. Furthermore, the original deal stipulated that the bonuses would not be linked to performance in any way, and were to be paid in cash.
In the first sign that the writing could be on the wall for Sir John, the former chairman of HSBC, the make-up of the bonuses was later switched to shares and a performance-related element was introduced after a chorus of opposition from shareholders.
"In the light of shareholders' decision not to support the board's recommendation, I have informed the Xstrata board to commence an orderly process to appoint a new independent chairman of Glencore Xstrata," he said.
David Rough, Xstrata's deputy chairman and senior independent director, was also fighting for his job yesterday as the City put the entire board under the spotlight.
Tom Gidley-Kitchin, an analyst at Charles Stanley, said: "People are extremely disappointed in David Rough, and he is now in a difficult position." Jane Coffey, head of equities at 0.5 per cent shareholder Royal London Asset Management, said: "We would have expected resignations. The retention package overcomplicated the whole deal and Xstrata initially failed to negotiate the best deal it could for its shareholders, even though it said the original offer was the best it could have negotiated."
In a further embarrassment for Sir John, in September Glencore raised the offer he had enthusiastically agreed on behalf of Xstrata in February, after a barrage of opposition from shareholders such as Qatar, which has a 12 per cent stake. Glencore originally offered Xstrata investors 2.8 of its shares for each one of theirs, but increased the ratio to 3.05.
The new deal also saw Sir John perform a further climbdown, as he dropped the bonuses as a condition for consummating the deal.
Xstrata and Glencore now need clearance from regulators. European competition regulators are due to announce by Thursday whether they will clear the deal, potentially with divestments, or begin a longer inquiry. It is thought to be looking most closely at the European zinc market, where the companies have a 50 per cent share. South Africa and China also need to clear the deal, although neither country has given a deadline.
If concluded, the merger would create a mining and commodities trader that encompasses Xstrata's coal, nickel, zinc and copper mines and Glencore's cotton-to-oil trading empire. In yesterday's complex three-part shareholder ballot, 78.8 per cent of Xstrata investors voted to approve the merger without the retention bonuses, while a motion backing the merger with the bonuses – which needed 75 per cent approval – only secured 68 per cent. The final vote, on just the retention bonuses, was rejected, leaving the deal approved but without the payouts.
Xstrata's shares added 29.8p to 986.6p while Glencore's increased by 5.15p to 331.75p.
Rocky road: How mega-deal was carved out
7 February Glencore and Xstrata agree an all-share merger to create a commodities powerhouse, offering 2.8 Glencore shares for every Xstrata one.
9 April Qatar's sovereign wealth fund starts building up it stake in Xstrata, initially past 5 per cent then past 10 per cent in June.
31 May The companies detail the deal, including a retention package worth millions for Xstrata's chief executive, Mick Davis, and other key managers. He was to stay on as chief executive of the new group, with Glencore's CEO, Ivan Glasenberg, as deputy chief executive.
26 June Qatar demands better terms, asking for 3.25 new Glencore shares for every Xstrata share.
7 September After late-night talks that end just hours before shareholders are to vote on the deal, Glencore raises its offer to 3.05 shares. Mr Davis will now leave, and Mr Glasenberg will head the group.
15 November Qatar says it will vote for the takeover but will abstain from voting on the multimillion-pound management retention plan.
20 November Investors pass the deal but vote down the pay plan.