A couple of weeks ago Ivan Glasenberg, CEO of Swiss-based commodity and minerals giant Glencore, got some some cheap publicity by criticising Australia for its rising costs, the mining and carbon tax and a few other issues:

“Ivan Glasenberg, the South-African-born head of commodities giant Glencore with a fortune valued at more than $6 billion, said the carbon tax and mining resources rent tax had made Australia a dangerous place to invest.

“Speaking at a mining industry dinner in London, Mr Glasenberg said international mining companies were disadvantaged by not enjoying the same leverage in Australia that they did in poorer countries.”

Glasenberg said the Gillard government’s impositions on the mining industry made it easier for Glencore to defend investments in riskier countries:

“One of the biggest questions was ‘You are in difficult, risky countries, you have assets in the Congo in Africa, you have got assets in Zambia (and) Colombia (and) Kazakhstan, these are risky countries. We are not that happy investing in you, we don’t know what these countries will do’.”

Cheap thrills for Ivan, but he should have been paying closer attention to his own business because overnight, his grand $US65 billion takeover/merger with 34%-owned associate Xstrata moved to the edge of collapse as more shareholders decided to oppose the deal for the soft terms and huge payouts to executives involved. There are now reports that Glencore and Xstrata are trying to redraft the deal (it has just two weeks to run) to save it, despite Glasenberg repeatedly saying the terms could not be changed and the huge payments to Xstrata executives had to go-ahead.

It will be a humiliating backdown for him and his opposite number at Xstrata (who was to get a multimillion dollar payout and other benefits from the deal) because the second largest shareholder in Xstrata, the sovereign wealth fund of Qatar, the second largest shareholder in the miner, opposed the terms of the deal. The announcement by Qatar Holding, which has just on 11% of  Xstrata, means that about a quarter of shareholders are against deal in its present shape, which is more than enough to block the merger.

Xstrata and Glencore are major investors in Australia. Xstrata is a big steaming and coking coal exporter from NSW and Queensland (it is said to be the biggest steaming coal shipper) and is a major miner of copper, lead and zinc at and around Mount Isa in Queensland. Glencore has nickel mining interests in WA and handles billions of dollars of commodity exports from Australia (minerals and rural products as well). Glencore recently bought Canadian grain handling group Viterra, which has a major presence in the Australian wheat and barley industries, especially in South Australia.

The Financial Times and other papers in the UK and North America reported that while Qatar said that it saw merit in a combination of the two companies it was “seeking improved merger terms”:

“Glencore is offering 2.8 of its shares for each of the miner’s but Qatar said an exchange ratio of 3.25 per share “would provide a more appropriate distribution of benefits of the merger.”

The development comes after the merger was already in considerable doubt because of opposition from other big holders of Xstrata shares. Protests from other shareholders over proposed retention payments for Xstrata’s senior executives have been reported from giant fund managers, including Standard Life, Schroders and Fidelity.

The FT said that “Sir John Bond, Xstrata’s chairman, and David Rough, senior independent director, have started to draft alternative packages for Xstrata executives ‘in line with shareholder feedback’, according to the person familiar with the deal. Xstrata could seek to reopen discussions over the merger ratio, which Glencore is likely to resist.”

The retention payments that have upset shareholders include proposed payments for Xstrata’s senior management, with £29 million (about $A45 million) being paid to strata CEO Mick Davis, which do not include performance targets.

“As part of the merger, Xstrata non-executive directors had insisted on retention packages, which totalled £173 million (more than $A265 million) for 73 senior employees, believing it crucial to keep the miner’s core team in place,” the FT reported.

There’s a rising level of shareholder activism in Britain. Annual meetings in the past few months have seen several leading companies suffer rejection of remuneration plans and several CEOs and chairmen forced to quit as a result. The CEOs of insurer Aviva and publishing group Trinity Mirror were forced to resign after getting stunning “no” votes, or realising they faced rejection and going before the AGM. Earlier this month, shareholders in WPP, the world’s biggest marketing firm, rejected the £6.8 million pay package of long-time CEO and founder Sir Martin Sorrell.

Peter Fray

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