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By Alex MacDonald
NEW YORK--Xstrata PLC's (XTA.LN) ninth largest shareholder, U.K. investment fund Scottish Widows Investment Partnership Ltd., said it was dismayed but not surprised that Xstrata's chairman, Sir John Bond, has decided to quit his position as chairman of the combined company once the merger with Glencore International PLC (GLEN.LN, 0805.HK, GLNCY) has closed and a new chairman has been selected.
"We are very disappointed but not surprised at the decision of Sir John Bond to step down as Chairman," Anne Fraser, SWIP's head of corporate governance, said in a statement. "Sir John's experience enhanced our confidence in the new board and the group's corporate governance structure. We will of course work with the new board as it starts the process to identify a successor," she said.
SWIP owns a 1.14% stake in the Zug, Switzerland-based miner.
Glencore and Xstrata have been seeking shareholder and regulatory approval to create a natural resources juggernaut with a market capitalization of around $70 billion and assets including coffee, grains, zinc, nickel, copper, coal, oil and shipping. The deal still needs regulatory approval from the European Union, China and South Africa to close, but analysts and investors expect Glencore to make any necessary concessions to secure antitrust approval.
The deal moved a step closer to completion Tuesday when Xstrata's shareholders voted to approve the deal but overwhelmingly rejected Xstrata board's recommendation to approve more than 140 million British pounds ($220 million) in retention payments. The proposed payments were intended to retain some 70 Xstrata managers who were considered critical to the success of the combined company, Glencore Xstrata PLC, given that they would be responsible for more than 80% of the combined company's earnings.
The rejection of the package made Mr. Bond's position as chairman of the combined company untenable, a top 40 shareholder who wished not to be named said.
Ms. Fraser said she was delighted that the deal was approved but dismayed the retention packages weren't approved. SWIP favored the deal being approved with the retention packages.
"Despite the outcome of the vote on the management incentive arrangement, retention risk will still have to be managed and any unapproved arrangement will offer less transparency and accountability to shareholders than an approved scheme."
Two people familiar with the matter said the management of the combined company could still seek to put together a retention package once the deal has closed in order to retain key staff.
Jeff Largey, a mining analyst at Macquarie Research, said "I don't think you will see mass departures" from the combined company. "There is clearly a path to wealth creation...by staying" at the combined company, he added. Both Xstrata and Glencore have a track record of rewarding their executives well for strong performance. Nevertheless, he said there was some risk managers might leave as other large miners such as Anglo American PLC (AAL.LN, AAUKY) consider restructuring their managements.
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