The vote is a victory for Xstrata's No. 3 shareholder, BlackRock Inc., which has led opposition to the bonuses, which are worth about £144 million. It also represents a final blow to Xstrata's board, which had insisted that the payouts were vital to the success of the merger.
Glencore, which already owns 34% of Xstrata, will pay 3.05 shares for each Xstrata share that it doesn't already own to create a new hybrid commodities trading and mining company that will have a market capitalization of about £53 billion.
"The Glencore-Xstrata merger is just the opening salvo of a flurry of mergers, acquisitions and public offerings that will redraw the map of the commodity trading industry," said Roland Rechtsteiner, a managing partner in Oliver Wyman Group's global risk and trading practice. "All commodity traders will need to re-examine their business models and think about how they can secure superior access to commodities."
In an initial two-part vote, shareholders voted 78.9% in favor of the deal without the bonuses, having earlier failed to support the deal with the bonuses included. That motion received 69.8% of votes cast, leaving it short of the required 75% support needed.
A separate motion to approve the management bonuses received only 21.6% of votes cast, leaving it short of the simple majority needed, prompting Xstrata chairman John Bond to declare that the merger without the bonuses had been approved.
Bond had earlier told the meeting that the board considered the management bonuses vital to ensuring the success of the merger and the ongoing business and that their link to cost savings meant they were "self financing."
The shareholders' refusal to back the bonuses follows widespread criticism of the Xstrata board for its handling of the takeover.
Xstrata's board in February supported Glencore's initial offer of 2.8 Glencore shares per Xstrata share, leading to a shareholder rebellion that was only averted by direct negotiations between Glencore and Xstrata's No. 2 shareholder, Qatar Holding LLC.
The Xstrata board also effectively lost its CEO Mick Davis, who was originally lined up to head the merged company, after being outmaneuvered by Glencore when it increased its offer to 3.05 shares. Glencore CEO Ivan Glasenberg will now take up the top executive role after a six-month transition period.
Shareholder pressure had earlier forced the board to rewrite the terms of the retention bonuses, which it had initially proposed to pay in cash and had not linked to any performance criteria.
Under pressure from BlackRock, Xstrata also later agreed to unbundle the retention bonuses from the takeover, offering shareholders a convoluted voting structure that stacked the deck in favor of a transaction that would include the bonuses.
Even then it couldn't get the bonuses passed.
Shareholder dissatisfaction with the Xstrata board was apparent at the meetings on Tuesday, which were held in Zug, Switzerland, where Xstrata is based, and in London.
The failings of the Xstrata board were "egregious" and no matter what the outcome, "the vote in no way mitigates the major failings," Knight Vinke Asset Management LLC's vice chairman David Trenchard told the Zug meeting. "We have voted against all propositions today."
Bond defended the board's role in the takeover, insisting that its decision to structure the deal as a scheme of arrangement, requiring 75% approval, had given Qatar Holding the "leverage" to negotiate an improved offer.
The success of Glencore's offer was effectively ensured last week when Qatar Holding, which owns about 12% of Xstrata, said it would vote for the deal. The Gulf state abstained from voting on the retention bonuses.
The transaction still requires regulatory approval. The European Commission on Oct. 31 extended its review of the merger until Nov. 22 in order to consider concessions including the sale of certain zinc operations.
Shares in Glencore traded Tuesday afternoon at 331 pence, up 4.4 pence, or just over 1.3%. That equates to an implied share price of 1,009.55 pence per Xstrata share. Xstrata shares traded at 985 pence, up 28.1 pence, or almost 3%.
Geoffrey F. Aronow joined Sidley Austin LLP as a partner in the global securities and derivatives enforcement and regulatory practice. For other updates launch today's Movers & shakers slideshow.
Katie Barthmaier of W. P. Carey visits The Deal to talk about transaction trends, why more companies are exploring splitting off their address, and ways to generate profits in sale leasebacks. More video