Xstrata / Glencore.

Influencing their behavior

Meeting (photo)

In February 2012, Glencore and Xstrata proposed a ‘merger of equals’. Xstrata shareholders were offered 2.8 shares in the new combined entity for each share they held and ‘Management Incentive Arrangements’ (MIAs) for retention. The management of Xstrata recommended that shareholders accepted the offer.

However, we believed that the 2.8 merger ratio undervalued Xstrata and so we informed the management that we were not supportive of their proposed terms. Furthermore, in our view there was no justification for the MIAs, which go against best practice. We told the company that we would vote against these items. Subsequently, the EGM, which was scheduled for 12 July 2012, was postponed.

In September 2012, Xstrata announced that it has received a new proposal from Glencore with a merger ratio of 3.05. In addition to supporting the new deal, the board of Xstrata still recommended shareholders to vote in favour of the retention payments for key Xstrata employees. At the EGM in November 2012, we voted in favour of the deal without the retention payments. The deal was passed without the MIAs, which received a significant 78% vote against at the EGM.

Following this vote, the Xstrata chairman stood down.

During the 11-month period of the merger we met the management of both companies 15 times to discuss the terms of the deal and the MIAs. Other shareholders went public on their stance whilst we felt a discreet approach was best and so kept our meetings and voting intentions private.

We will continue to engage with management on how to proceed and put in place best governance practices for the merged entity. We are actively involved in helping the company with the selection process for the new chairman.

You can find more examples of our voting and campaigning as a major investor in the corporate governance section of the Legal & General Investment Management website.

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