Tough weeks ahead as pay sours Glencore-Xstrata deal

Thu Jun 14, 2012 9:45am EDT
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By Clara Ferreira-Marques and Sinead Cruise

LONDON (Reuters) - Heightened emotions over executive pay are likely to hang over Glencore (GLEN.L: Quote) and Xstrata XTA.L bosses' last ditch meetings with key investors, raising tensions in the last weeks before a July vote on the trader's $30 billion takeover bid.

Top executives from both sides are trying to convince recalcitrant Xstrata shareholders to back not just the deal, but also an unpopular retention package worth more than 170 million pounds ($265 million) for the miner's top 73 managers - a team whose operational expertise they say is key to future profit.

A revolt at advertising agency WPP (WPP.L: Quote) on Wednesday where investors rejected boss Martin Sorrell's 6.8 million pound pay award amid a broader "shareholder spring" that has claimed top executive scalps, has made the two companies' task tougher.

"Given WPP, I think we have to take the risk of shareholder resistance seriously," said one hedge fund adviser. "If someone is against the pay, they will also vote against the deal."

Sources familiar with the matter said insiders on both sides were unsettled over the unprecedented backlash over pay, even by standards familiar to Xstrata given chief executive Mick Davis has long been one of the most highly paid in the FTSE 100.

"It is extremely hard for us, as institutional shareholders, to vote for retention packages like that because, in the current environment, it does look fairly egregious," said one top-50 Xstrata shareholder.

"The way that they have done it is such that you cannot vote against those proposals without voting against the deal, which I think is a very dangerous way of structuring the thing ... I think it will be really close."

Ultimately, most analysts and sources involved in the transaction still say dealmakers on both sides are expected to get the deal across the finish line, but it could be tight.   Continued...

The logo of Glencore is seen in front of the company's headquarters in the Swiss town of Zug May 9, 2012. REUTERS/Arnd Wiegmann