A logo of the Swiss mining company Xstrata is shown at the headquarters in Zug, Sept. 7, 2012.Michael Buholzer/Reuters
The largest takeover of the year could come a step closer to realization this week.
Xstrata PLC shareholders will hear from directors on Monday whether to approve the terms of a takeover by Swiss commodities trader Glencore PLC that would create an $83-billion company and one of the world's largest resource players.
Glencore is offering about $33-billion for Xstrata, which is based in Zug, Switzerland. Xstrata grew over the last decade into one of the world's largest producers of copper, thermal and metallurgical coal, ferrochrome, zinc and nickel, largely on the back of a China-fueled resource boom.
Glencore wants to marry a proven marketing machine across agricultural, oil and gas and metals divisions with Xstrata's cash-generating mining portfolio as it faces slowing demand amid global economic turbulence.
The all-stock offer of 3.05 Glencore shares for each Xstrata share is the second since key shareholders opposed an earlier bid ratio of 2.8 Glencore shares.
That proposal was made in February and appeared bound for success until the Qatar Holdings sovereign wealth fund – a top shareholder – surprised markets in June with demands for a share ratio of at least 3.25.
A takeover would give Glencore economies of scale as metals prices retreat in the wake of slower growth in China. A fortified Glencore would stand toe-to-toe with the likes of BHP Billiton Ltd., Rio Tinto PLC and Vale SA.
Shareholders will first vote on a $226-million, two-year pay package aimed at retaining Xstrata's key managers and then vote separately on the merger, Reuters reported, citing two people familiar with the talks. Independent board members have been meeting with key shareholders since the bid was sweetened in September, but with proposed changes to management and generous retention packages that have irked some shareholders.
While the takeover is widely expected to get done, new doubts emerged last week when both companies requested another week for directors to deliberate.
"Given that the merger was recommended when terms first appeared and that Glencore has subsequently increased its offer, notwithstanding secondary but nevertheless thorny issues around retention packages for key management, we do expect the Xstrata board to recommend this deal to its shareholders on Monday," said Edison Investment Research analyst Charles Gibson.