Xstrata shareholders have time to reread the fine print

Marc Sidwell
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FOLLOWERS of the Glencore-Xstrata merger proposal will be aware that the £44bn deal itself has faded into the background in recent months, replaced instead by a seemingly endless boardroom melodrama. Perhaps today’s announcement will allow attention to return to the compelling logic behind the tie-up: the world’s biggest commodities trader and the world’s biggest miner of thermal coal joining forces to compete with resources giants like BHP Billiton.

And yet, first, a warning. It’s not over yet. Indeed, how could anyone who has been watching episode after episode unfold imagine otherwise? As with every well-crafted soap opera, each cliffhanger draws you back for the next instalment, only to end on a fresh precipice.

Today, just squeaking in before the 7am Takeover Panel deadline, Xstrata’s board has agreed to support the new terms of the merger. On this basis, Ivan Glasenberg would replace Mick Davis as chief executive after six months and the number of shares in the new group exchanged for every share in Xstrata has been raised from 2.8 to 3.05. There are also new terms for the final shareholder vote. It all seems like a step in the right direction. But then, we have been here before.

It can’t go on forever. The Glencore-Xstrata saga will reach a final page. But not today. That must wait until the vote itself – now not expected until November. And while the board’s recommendation suggests a certain confidence in the outcome, there remain a number of concerns. For one, the share offer is improved, but not to the level of 3.25 that Qatar Holding was calling for when it brought the deal to the brink. The vocal Qataris have not exerted themselves protesting the new terms, so perhaps they are happy enough. But if this was a real soap opera, that uncertainty certainly creates room for a reversal.

Of longer-term concern is the gleam of golden handcuffs still attached to the deal. Mick Davis is not staying beyond the summer of 2013 under the new arrangements, which takes £29m out of the original retention package, but the rest of Xstrata’s senior managers are, and at a cost of £144m. The Xstrata board was up into the small hours hammering out a voting arrangement it was confident would prevent any discontent over the pay awards from scuppering the whole merger. But that means the merger could go through with this unpopular condition still attached – which is not good if you think the concerns justified.

All of which returns us to the deal. Tying together these firms makes considerable sense. But not, as Ivan Glasenberg was keen to stress when he came under fire, at any price. With a breathing space before the vote, there is time for everyone to stand back, forget the bickering and take a long, hard look at whether on these terms it all still makes sense.