THE management of Xstrata, one of the largest mining companies in Australia, is in turmoil after Friday's termination of meetings to approve a merger with commodities trader Glencore.
Investors punished Glencore on Friday after chief executive Ivan Glasenberg effectively turned a friendly merger into a hostile takeover bid for Xstrata, by lifting the scrip merger ratio by 9 per cent but at the same time proposing to take over from Mick Davis as chief executive of the combined group.
Glencore shares fell 3.6 per cent to 378 pence while Xstrata shares rose 3.6 per cent to 1014p in London.
Richard Buxton, of Schroders, one of Xstrata's biggest institutional shareholders, said the new proposals "made a mockery of the merger terms" that had been discussed for the past seven months. ''We think that Mick and his team should still be in the driving seat,'' he said.
But another of Xstrata's major shareholders, Standard Life Investments, which had initially opposed the Glencore deal, said it was supportive of the improved terms. ''We are pleased with the proposed outcome,'' said David Cumming, head of equities at Standard Life.
The dramatic development followed a Thursday evening negotiating session in a London hotel mediated by former British prime minister Tony Blair between Mr Glasenberg and Qatar's Prime Minister, Sheikh Hamad Bin Jasim Bin Jabr al-Thani.
Qatar's sovereign wealth fund, which has been insisting on a higher price, holds a pivotal 12 per cent share in Xstrata. Since 2008, Mr Blair has been a senior adviser to JPMorgan Chase & Co, which is advising Xstrata.
Glencore's revised bid will require approval from Xstrata's board.
In a statement on Friday Xstrata noted that the proposed exchange ratio of 3.05 represented a premium of 17.6 per cent to the undisturbed Xstrata share price on 1 February, 2012, which was ''significantly lower than would be expected in a takeover''.
That is less than the average announced premium of 30 per cent for all other mining deals valued at more than $US5 billion since at least 1999, according to Bloomberg.
Xstrata also noted that the intention to replace Mr Davis as CEO and to amend the management incentive arrangements represented ''significant risk around the retention of the Xstrata senior and operational management intended to be responsible for approximately 80 per cent of the combined group's earnings and represented a fundamental change to the governance structure which underpinned the agreed merger of equals announced on February 7, 2012''.
While Qatar is broadly supportive of Glencore's new terms for the takeover, it was unaware that Glencore would seek to drop Mr Davis as CEO of a merged group, according to two sources. Qatar did not agree with the proposed change to the CEO role, they said.