RECOMMENDED ALL-SHARE MERGER OF EQUALS OF
GLENCORE INTERNATIONAL PLC AND XSTRATA PLC
1 October 2012
The Glencore Directors and the Independent Xstrata Non-Executive Directors announce that they have reached agreement on the final terms of a revised recommended all-share merger of equals, on the basis set out in this announcement.
· The strategic rationale for the Merger remains compelling and the transaction has the potential to create superior value for Xstrata Shareholders
· The increased merger ratio of 3.05 New Glencore Shares for every Xstrata Share represents an 17.6 per cent. premium over the ratio of 2.59 implied by undisturbed closing share prices on 1 February 2012, and is 25.5 per cent. higher than the ratio of 2.43, being the average of the ratios implied by the middle market closing share prices of the two companies between 3 September 2012 and 6 September 2012, the latter being the last business day prior to the announcement by Xstrata of the revised proposal from Glencore
· The original board structure remains unchanged, except that Mick Davis will become CEO of the Combined Group for a period of six months from the Effective Date. Upon his departure, Ivan Glasenberg will become CEO of the Combined Group. A current Xstrata Group operational executive will replace Mick Davis upon his departure as an executive director of the board of the Combined Entity, to preserve the majority of Xstrata directors on the board
· The Independent Xstrata Non-Executive Directors continue to believe the proposed exchange ratio, governance structure and the retention of key Xstrata managers through the Revised Management Incentive Arrangements are essential elements of the Merger
· The Merger will be implemented via a Court-sanctioned scheme of arrangement to safeguard the requirement that a significant majority of Xstrata Shareholders approve the Merger and to ensure a binary outcome
· In response to Xstrata Shareholder feedback, the Independent Xstrata Non-Executive Directors have determined that the New Scheme will no longer be conditional on the approval of the Revised Management Incentive Arrangements, meaning that the Merger could proceed even if the Revised Management Incentive Arrangements are not approved. Accordingly, the Independent Xstrata Non-Executive Directors, with the agreement of Glencore, propose that under the New Scheme, eligible Xstrata Shareholders will vote on two resolutions at the New Court Meeting as follows:
1. To approve the New Scheme subject to the resolution to approve the Revised Management Incentive Arrangements to be put to the Further Xstrata General Meeting being passed. The Independent Xstrata Non-Executive Directors intend to recommend unanimously that eligible Xstrata Shareholders vote in favour of only this resolution at the New Court Meeting; and
2. To approve the New Scheme subject to the resolution to approve the Revised Management Incentive Arrangements to be put to the Further Xstrata General Meeting not being passed
· Eligible Xstrata Shareholders should vote on both New Scheme resolutions, which in each case require approval by 75 per cent. by value and a majority by number of eligible Xstrata Shareholders voting (in person or by proxy)
· Eligible Xstrata Shareholders should also vote on the resolutions to be put to the Further Xstrata General Meeting, one of which will be the ordinary resolution to approve the Revised Management Incentive Arrangements
· The outcome of the vote on the ordinary resolution to approve the Revised Management Incentive Arrangements will determine which of the two New Scheme resolutions will be disregarded. The result of the vote on the remaining resolution to approve the New Scheme will then determine whether or not the Merger proceeds. Further details are set out in paragraph 13 of this announcement
· Mick Davis will no longer participate in the Revised Management Incentive Arrangements and will receive only his current contractual entitlement upon termination of his existing Xstrata service contract. The contracts of employment for all other members of Xstrata’s Management and Xstrata Senior Employees will be amended to reflect the fact that Mick Davis will cease to be CEO of the Combined Group and that this will no longer constitute an amendment to the agreed governance structure
The Independent Xstrata Non-Executive Directors, who have been so advised by each of the Xstrata Financial Advisers, consider the terms of the Merger to be fair and reasonable, but only if the Revised Management Incentive Arrangement Resolution is passed at the Further Xstrata General Meeting. In providing its advice, each of the Xstrata Financial Advisers has taken into account the commercial assessments of the Independent Xstrata Non-Executive Directors.
Accordingly, the Independent Xstrata Non-Executive Directors intend unanimously to recommend eligible Xstrata Shareholders to vote to approve: (i) the New Scheme, but only if the Revised Management Incentive Arrangements Resolution is passed at the Further Xstrata General Meeting; and (ii) the Revised Management Incentive Arrangements (in each case, as the Independent Xstrata Non-Executive Directors who hold or are beneficially entitled to Xstrata Shares have irrevocably undertaken to do in respect of their own Xstrata Shares (representing approximately 0.1 per cent. of the issued ordinary share capital of Xstrata)).
Sir John Bond, Xstrata plc non-executive Chairman said:
“The Independent Xstrata Non-Executive Directors have carefully considered the terms of the revised Glencore proposal to assess the value proposition and ensure safeguards and an appropriate governance structure are in place for Xstrata Shareholders, in view of Glencore’s condition that Mick Davis will step down as CEO of the Combined Group six months after the Merger closing. In doing so, we have consulted with our major shareholders and taken their views into account. We have preserved the original board structure, including after Mick Davis’s departure and the board has received satisfactory assurances on the governance, future strategy and management of the Combined Group. The scheme of arrangement structure remains a critical element of the transaction, ensuring a definitive outcome and requiring a significant majority of non-Glencore Xstrata Shareholders to approve the Merger.
“Without the ability to retain key Xstrata managers to run the Combined Group’s mining operations through the Revised Management Incentive Arrangements, the Independent Xstrata Non-Executive Directors believe that the value proposition of the Combined Entity is at risk. This view was reaffirmed by major shareholders, in particular in the light of the change of CEO and remains the rationale for retention arrangements. Nonetheless, some other shareholders remain opposed either to the principle of retention payments or to the originally proposed inter-conditional nature of the Merger resolutions.
“Accordingly, we have decided to decouple the resolutions to approve the Merger from the resolution to approve the Revised Management Incentive Arrangements. This will, we believe, enable shareholders to vote in line with their convictions in respect of retention arrangements, without influencing their voting intention on the New Scheme. Importantly, shareholders who would only support the Merger if key Xstrata personnel can be retained are able to approve the New Scheme only if retention arrangements are approved by shareholders. The Independent Xstrata Non-Executive Directors intend unanimously to recommend that eligible Xstrata Shareholders vote in favour of the resolution to approve the Revised Management Incentive Arrangements and in favour of the Merger but only if the Revised Management Incentive Arrangements are approved.”
Mick Davis, Xstrata plc Chief Executive Officer commented:
“The strategic rationale for combining Xstrata and Glencore remains highly compelling. A merger will fuse the respective strengths of the two companies into a unique, vertically integrated natural resources group. It will also resolve Xstrata’s ownership structure in a way that I believe will create superior shareholder value as part of a larger, more diverse company with an enhanced ability to grow and create value for its owners.
“My objective during my time as CEO of the Combined Group will be to preserve and enhance the value Xstrata’s management team has created over the past ten years through a well-planned integration process and to lay down the foundations for the Combined Group’s success over many decades to come.”
Ivan Glasenberg, Glencore International plc Chief Executive Officer, said:
"We are pleased that Xstrata’s Independent Non-Executive Directors have recommended our revised terms which offer Xstrata shareholders a significant premium.
“We have always been in favour of the proposed retention arrangements to incentivise key Xstrata employees. Their commitment is vital as we look to capture the full synergy and value creation benefits of the transaction and realise the potential of both companies’ strong long-term organic growth plans.
“The amended proposed voting structure should allow Xstrata shareholders to fully express their own views on the proposed structure of the transaction.”
Simon Murray, Glencore International plc non-executive Chairman, commented:
“The Glencore Board fully supports the strategic rationale for the merger with Xstrata, which will strengthen the existing strong relationship between these two leaders in the commodities industry.
“The complementary focus, combined industrial assets, logistics and marketing capabilities of these two companies will create a larger, more diversified player with excellent prospects for growth through the cycle. Together the Combined Group will have the scale to play a key role in meeting the growing global demand for commodities whilst helping resource holding countries create value from their natural endowments.”
The Glencore Directors consider the Merger to be in the best interests of Glencore Shareholders taken as a whole. Accordingly, the Glencore Directors intend unanimously to recommend Glencore Shareholders to vote in favour of the resolution to be proposed at the Glencore General Meeting to approve the Merger and related resolutions as the Glencore Directors who hold or are beneficially entitled to Glencore Shares have irrevocably undertaken to do in respect of their own Glencore Shares (representing approximately 16.9 per cent. of the issued ordinary share capital of Glencore).
The revised terms of the Merger set out in this announcement are final. The full detail of these revised terms will be set out in the New Scheme Document to be posted and made available to all eligible Xstrata Shareholders during October 2012.
It is expected that the New Scheme Document, containing further information about the Merger and notices of the New Court Meeting and Further Xstrata General Meeting, together with the Further Forms of Proxy, will be posted and made available to Xstrata Shareholders during October 2012. It is also expected that the New Scheme will then become effective before 31 December 2012, subject to the satisfaction of the Conditions and certain further terms set out in Appendix 1 to this announcement.
It is also expected that, in accordance with the Prospectus Rules, Glencore will publish further documentation containing updated information about the New Glencore Shares during October 2012.
It is further expected that Glencore will formally notify the European Commission of the Merger shortly. The processes in respect of South Africa and China are ongoing. It is anticipated that the requisite approvals will be obtained before 31 December 2012.
The Further Glencore Circular will include full details of the Merger, together with the notice of the Glencore General Meeting at which the relevant resolutions will be proposed for the approval of the Merger by Glencore Shareholders, including as a “Class 1” transaction under the Listing Rules. The Further Glencore Circular is expected to be posted to Glencore Shareholders at or around the same time as the New Scheme Document is posted to Xstrata Shareholders.
This summary should be read in conjunction with, and is subject to, the full text of the following announcement (including its Appendices). The Merger will be subject to the Conditions and certain further terms set out in Appendix 1 and to the full terms and conditions to be set out in the New Scheme Document and the Further Forms of Proxy. Appendix 2 contains the sources and bases of certain information contained in this summary and the following announcement. Appendix 3 contains details of the irrevocable undertakings received by Xstrata and Glencore. Appendix 4 contains the definitions of certain terms used in this summary and the following announcement.