Xstrata Chief Executive Mick Davis is facing growing pressure from shareholders to secure a better deal in the miner's $41 billion (25 billion pounds) takeover by Glencore, as he begins a transatlantic trip that could secure or sink the tie-up.
The charm offensive -- a scheduled roadshow after the miner's annual results -- coincides with mounting opposition from Xstrata investors insisting they could get a better premium from Glencore and worried that Davis, set to secure a hefty retention package and the chief executive role, may not be pushing hard enough.
Davis, who has led Xstrata for over a decade, will also have to explain a complex management structure that will see him effectively sharing the top job with Glencore's Ivan Glasenberg, and potential duplication further down the chain of command.
Opposition does seem to be building from the big institutions, with the exception of Blackrock, said one top-20 Xstrata shareholder, reiterating his view that the terms of the offer undervalue Xstrata.
A second top-20 investor, speaking on condition of anonymity pending a meeting with Davis this week, said: I don't think the market is in a great mood to see Mick Davis take a large cheque here. That could be problematic.
BIG PAY DAY
Davis is set to forgo a change of control package that would have seen him take home some 9 million pounds in guaranteed salary, pension and other benefits, as a result of the takeover by Glencore, but he is still expected to get a hefty shares package to ensure he stays on after the deal.
Xstrata's top shareholder Glencore is not allowed to vote on the deal and top-10 investors Standard Life Investments and Schroders have said they would reject the bid -- meaning rebel investors would have to account for just 16.5 percent of Xstrata's total shares to derail the offer.
Standard Life and Schroders together own 3.6 percent of the company, but 5.6 percent of the shares needed for approval.
Blackrock is Xstrata's second-largest shareholder after Glencore's 34-percent stake with a 5.8 percent holding.
Under the present terms, Glencore will issue 2.8 new shares for each Xstrata share in what it calls a 'merger of equals'.
I would be surprised if the index investors didn't push for better terms. They might be passive, but it's a question of do they want more money or not? said the second top-20 investor. I think Glencore would have half-expected this, and would be prepared to bump as a consequence.
Glencore is considered to have some room for manoeuvre.
Sources familiar with the matter said any boost would have to be significant -- lifting the ratio to at least 3 Glencore shares for every Xstrata share. Others pointed to options including a special dividend to sweeten shareholders, boosting value, but keeping ownership levels stable.
Glencore would have to opt out of the dividend of course, but it would save face by not altering the ratio, one hedge fund investor said.
But, with the two chief executives' reputations as tough, hard-bittern negotiators, shareholders are also pragmatic, and it may not take much movement on Glencore's part to get a deal.
As an Xstrata shareholder, would I like a 20 percent premium? Yes, obviously, said one top-30 shareholder. Do I expect to get a 20 percent premium? No.
TROUBLE AT THE TOP?
Glasenberg, Glencore's top shareholder and its driving force, is set to become number two to Davis, his erstwhile rival.
The two men get on well and Glasenberg, who has never relished the limelight, is expected to be happy to have Davis as the face of the company.
Despite the column inches, the two actually have a decent personal relationship, one source who has worked with the two men said. And Ivan has what he wanted: access to volumes, which should make a huge amount of money.
Glasenberg has agreed not to try to change the way the company is governed for two years. This has left many in the industry expecting a shake-out after that time.
If you asked me do I see this structure in place in two years' time, the answer is no, the source added.
(Writing and reporting by Clara Ferreira-Marques in CAPE TOWN; Additional reporting by Chris Vellacott in LONDON; Editing by Chris Wickham and Helen Massy-Beresford)