LONDON/ZUG, Switzerland Shareholders in Xstrata prompted the resignation of the miner's chairman on Tuesday as they voted through a $31 billion takeover by trader Glencore but twice snubbed a controversial pay plan to retain key managers.
Xstrata Chairman John Bond, formerly chairman of HSBC and Vodafone, would have been chairman of the new Glencore Xstrata.
Bond had been under fire for months over a 140 million pound ($223 million) "golden handcuffs" package for managers the Xstrata board said were key to operations, and over what some investors felt was an insufficient fight for better terms from Glencore, Xstrata's top shareholder.
It took an unprecedented, activist stance from the Gulf state of Qatar, an unexpected kingmaker and second-largest shareholder in Xstrata, to force Glencore to improve the offer - just hours before a September shareholder vote, later cancelled.
At the shareholder meeting in the lakeside Swiss town of Zug activist investor Knight Vinke, also a top 25 Xstrata shareholder, accused the board of "governance failings" and said it had no confidence in its independence and robustness.
Bond defended both the board and the retention plan.
"Right now, there is $20 billion of your money invested in 20 projects and extensions," he told investors gathered for the votes. "It is the Xstrata management team that is responsible for making sure these investments are made safely, soundly and profitably."
But hours later he resigned, citing shareholder votes that had opposed every one of the Xstrata board's recommendations.
"He's fallen on his sword," analyst Paul Gait at brokerage Bernstein said. "The Qataris basically took the running of the merger process out of his hands - and then there was essentially a vote of non-confidence passed by the shareholders in the company regarding his recommendations.
"How his position could ever have been tenable after that is beyond me."
VOTE IN FAVOUR
Following an overwhelming vote in favour from Glencore's shareholders, almost 79 percent of Xstrata's voting shareholders gave their support to the takeover - but without the pay deal.
Qatar had said it would back the main resolutions on Glencore but would abstain on the retention, making it likely that vote would fail.
In the event, 78.4 percent of those voting cast their votes against pay awards described by Knight Vinke as "egregious".
Glencore was not able to vote its shares on Tuesday.
At least one Xstrata shareholder, top 10 investor Scottish Widows Investment Partnership, said the miner would still have to manage "retention risk" as it executes on a pipeline of projects, cautioning an unapproved arrangement could "offer less transparency and accountability to shareholders".
Tuesday's complex series of votes, taking over more than two hours, brought one of the sector's biggest ever deals closer to the finish line, with only antitrust clearance remaining. Xstrata board members, visibly relieved, exchanged handshakes and pats on the back as the voting ended.
A verdict from the European Union, the toughest of the remaining hurdles, is due later this week. Glencore has already offered concessions in its zinc operations to avoid a lengthier probe.
Approval from Brussels will all but secure a deal, ending years of on-off merger talks between Xstrata and its largest shareholder and more than nine months of often tense negotiations to create what both sides hope will be a mining and trading powerhouse.
The tie-up, on the cards after Glencore listed last year, looks set to become the largest deal in the sector since Rio Tinto's acquisition of Alcan in 2007.
Shares in the two sides were trading on Tuesday at prices implying a ratio of 2.97, moving towards Glencore's offer of 3.05 new shares for every Xstrata share held.
"It's like a marriage. People are afraid when the moment comes but it's good in the long term," asset manager Thomas Mitsoulis, whose clients own Xstrata shares, said in Zug.
"Shareholders want more and in the long term the merger will mean more cash and more dividends."
Analysts and industry advisers have already begun focusing on the next steps for a group that, with its spread of assets from mines, to oil wells to farms and more ships than Britain's Royal Navy, is expected to be a deal machine in frugal times.
Xstrata's own growth over the last decade has been fuelled by deals and it was set up with a $2.5 billion acquisition of Glencore coal assets. Glencore, for its part, joined the stock market last year with the intention of funding larger deals, including the bid for control of Xstrata.
"These companies have looked at doing significant acquisitions over the last year - the question is whether they buck the trend and provide more buoyancy in the industry," Alexander Keepin, partner and co-head of mining at law firm Berwin Leighton Paisner said.
Glencore and Xstrata have already proved a bright spot for the nine banks, law firms and countless other advisers, who will share a fee pot worth some $200 million.
Depending on the combined group's final weighting, Glencore Xstrata could be the 13th largest company in Britain's FTSE 100, representing more than 2 percent of the index.
It could also sell some non-core assets - not least Xstrata's chrome and platinum, analysts say, and revise Xstrata's portfolio of mining projects, some of which are ambitious greenfield mines that Glencore does not prioritise.
(Additional reporting by Sarah Young; Editing by Erica Billingham and David Holmes)