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Xstrata Aims To Salvage Glencore Deal

(c) Sky News 2012

Xstrata (Dusseldorf: XTR.DU - news) , the FTSE 100 (Euronext: VFTSE.NX - news) miner, plans to switch a controversial £173m executive bonus pot from cash to shares in a desperate effort to secure a £50bn merger with Glencore, I have learnt.

The company, which has infuriated City investors with proposals that would see Mick Davis, its chief executive, paid £29m simply for staying with the enlarged group for three years, has drawn up fresh plans which could be announced to the stock market as soon as Wednesday.

I understand that the bonus pot would largely switch from cash payouts to equity in the merged group in an attempt to appease shareholders.

The most senior executives, including Davis, would also have their retention payments linked to the financial synergies achieved by the new company, although as I understand it, that performance condition would not apply to all the managers who are eligible for the payments.

It’s unclear whether the revised package will be enough to secure the support of enough shareholders to approve the takeover of Xstrata when they vote on it in mid-July.

To be clear, the revised terms being discussed do not envisage a reduction in the size of that £173m bonus pool, merely a difference in the means of paying it.

Big City fund managers including Standard Life Investments have opposed the deal on the basis of the bonus payments, saying that approving it would undermine the entire 'shareholder spring', which has seen a string of FTSE companies suffer humiliating votes against their remuneration plans.

There were renewed doubts over the mining megadeal tonight when Qatar Holding, the sovereign wealth fund that owns 11 per cent of Xstrata, issued the following statement: "QH announces that it has today informed Glencore that, whilst it sees merit in a combination of the two companies, it is seeking improved merger terms.

"QH believes that an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata. QH is being advised in this matter by Lazard."

Most media outlets have tonight interpreted that statement as sounding a death knell for the merger. However, several people close to the situation said that the move by Qatar could – paradoxically – make the merger easier to push through because it would shift the focus of investors' attention back towards the terms of the deal, rather than the retention payments.

That will largely depend on whether Ivan Glasenberg, Glencore's chief executive, is willing to raise the price being offered for Xstrata.

None of the parties involved in the discussions was available for comment.