LONDON Xstrata's board is expected to recommend Glencore's revised $34 billion bid as early as next week, sources close to the deal say, although it may come with some qualification surrounding such issues as staff retention.
Glencore, already Xstrata's biggest shareholder with a 34 percent stake, made its original recommended all-share offer in February but hit trouble in June when the company's second-biggest investor Qatar Holding demanded an improved deal.
Detailing the new offer on Monday, Glencore said Xstrata shareholders would now get 3.05 shares for every Xstrata share held, instead of the previous offer of 2.8 shares. However, under the new proposal its own chief executive, Ivan Glasenberg, is to take over the helm of the combined business from Xstrata's chief executive Mick Davis, who would have stayed for at least three years under the original deal.
Instead, Davis, who has led Xstrata for over a decade, will leave within six months.
"We all agree that 3.05 is better, and that if you were happy with 2.8, you should be happy with 3.05," one source involved in the deal said.
"But it is all work in progress. There are a lot of people saying this is a slam dunk, but the board has a duty ... to ensure they are comfortable they have the right construct (and can) retain key operational personnel."
It was not clear what changes the Xstrata board could request or demand, but one of the sources said the board could seek guarantees from Glencore for managers it sees as key: "It will take more than just reassurance."
A separate source said any changes were likely to come in Xstrata's controversial retention package for more than 70 key executives, though others said that was not likely to change.
Operational and management issues are key for Xstrata and at the forefront of concerns for the board, several of the sources said, as the miner shifts from an acquisition-fuelled first decade into a phase of organic growth which the miner hopes will boost volumes by 50 percent by the end of 2014 and cut costs.
Xstrata's board has until September 24 to decide whether or not to recommend the revised offer. Hostile bids are unusual in mining, a sector in which many large deals and mega-mergers have failed to materialize for a variety of reasons including political and regulatory issues and a tie-up between Xstrata and Glencore would be the second-biggest deal in the sector to date.
Several sources said the board - set to meet this week and next as talks continue between independent directors and shareholders - had not yet taken a final decision on details including changes to the staff retention package, for example, but could reach an agreement before the deadline of September 24.
"Meetings are still going on. The board will have a range of views to consider," another source familiar with the deal said.
Shareholders have been broadly supportive of the revised offer, though Qatar, which has backed Xstrata's management, has yet to make its decision public. It said earlier this week it was considering its position.
Most of the sources said they now expected a deal could be done, however. "We are now far more optimistic than last week. It looks like if there is no deal agreed on Monday, then it will be (a few days later)," one of them said.
Xstrata's independent directors are unlikely to rush their approval, having come under fire after recommending the original Glencore deal and the more than 170 million-pound ($274 million) retention package for 73 of the miner's top managers which many shareholders felt was excessive.
After Glencore's last-minute revision of its offer last week the directors said in a curt statement that the exchange ratio was "significantly lower than would be expected in a takeover" and warned of "significant risk" if Davis were to be replaced as chief executive and management incentive arrangements altered.
In detailing its revised offer on Monday Glencore took a more conciliatory tone than when it first made the proposal on Friday, saying the retention and incentive arrangements would have to be acceptable to shareholders.
(Editing by Greg Mahlich)