Top executives at trader Glencore and miner Xstrata are hammering out the final details of an $80 billion (50 billion pounds) tie-up to seal the industry's largest ever takeover, which could be announced as early as Tuesday.
Xstrata, in which Glencore already has a 34 percent stake, announced last week it had been approached by the world's largest diversified commodities trader and was in discussions over an all-share merger of equals, a deal that would be the largest in the sector since Rio Tinto's takeover of Alcan in 2007.
The agreement is set to be announced this week, potentially Tuesday, when Xstrata is due to publish 2011 results.
One source involved in the proceedings described the mood behind the scenes over the weekend as constructive, and others said brushed off concerns the latest round of talks would collapse over either of the two hurdles that have tripped them up in the past -- governance and price.
The two groups, which restarted discussions before Christmas after years of on-off talks, have reached a preliminary understanding on the structure of the top management, according to sources familiar with the deal, with Xstrata expected to take a majority of seats on the board, to keep its chairman, City heavyweight John Bond, as well as its chief executive, Mick Davis, and its chief financial officer, Trevor Reid.
Glencore Chief Executive Ivan Glasenberg, who will be the largest single shareholder in the combined mining and trading entity, is expected to hold a deputy position.
Davis, who has been at the helm of Xstrata for a decade, is expected to receive an up to 10 million pound ($16 million)retention package in the event of change of control, to stay on as chief executive, the Sunday Times reported.
In the past, the issue of price and premium and the difficult valuation of Glencore's marketing business has separated the two companies, but the two are this time discussing a percentage premium to Xstrata's share price in the low single digits -- effectively a ratio to balance out the value of both companies, according to several of the sources.
But Xstrata shareholders, who helped block a deal before Glencore's record listing last May on the grounds that they needed a clearer valuation of the trader, could push for more.
John Bond is the chairman, so we will be making very sure that he maximizes value for Xstrata shareholders, which means a nil premium merger is not a runner, one top-five shareholder said last week.
One source familiar with the negotiations, however, pointed to the increase in the companies' valuations -- an almost 11 percent uplift for Xstrata shareholders alone since the close on Wednesday, the day before merger talks were announced: That is real money, real share value, the source said.
The merger is expected to take the form of a scheme of arrangement, which would leave Glencore out of any vote.
(Additional reporting by Sinead Cruise; Editing by Will Waterman)