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September 21, 2017

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Xstrata, Glencore reach deal for massive tie-up

ZURICH--Swiss mining group Xstrata and commodities giant Glencore said on Monday they had agreed on new terms for their tie-up to create a massive company worth about 53 billion pounds.

"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," they said in a statement.

The general assemblies of both Swiss companies had been set to approve the blockbuster merger at the beginning of September but the deal ran into major resistance from several Xstrata shareholders demanding better conditions.

Qatar Holding, which is wholly owned by Qatari's sovereign wealth fund and is the single biggest shareholder in Xstrata with more than 12 percent of its shares, had led the opposition.

The revised terms mean that Xstrata shareholders will receive 3.05 Glencore shares, which the companies said represents a 17.6-percent premium on the price of the miner's shares before the merger bid was announced in February.

Xstrata and Glencore want shareholders to vote so the combined company, worth about 53 billion pounds (US$90 billion) can come into being by the end of the year.

Xstrata's shares rose around 1.5 percent in early trading to 972 pence, while Glencore's slid 0.6 percent to 341 pence.

A key disagreement that had held threatened the deal, massive retention payments to senior Xstata managers to ensure they remain with the merged company, has been left to shareholders to vote upon.

While a rejection of the payments would not block a merger, the directors of the companies recommended that shareholders back the incentives.

"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," Xstrata non-executive director John Bond said in a statement.

Glencore chief executive Ivan Glasenberg said "their commitment is vital as we look to capture the full synergy and value creation benefits of the transaction and realize the potential of both companies' strong long-term organic growth plans."

Bond said the change "will, we believe, enable shareholders to vote in line with their convictions in respect of retention arrangements, without influencing their voting intention on the (merger)."

The revised deal will see Xstrata chief executive Mick Davis removed from the retention package, saving roughly 29 million pounds. The company had previously planed 173 million pounds in retention payments to 73 senior Xstrata managers, according to Dow Jones Newswires.

The revised deal would also see Xstrata's Davis lead the combined group for six months then Glencore's Glasenberg take over as chief executive.

An Xstrata executive would take over Davis's position as executive director of the merged group's board.

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