The current doings of Xstrata CEO Mick Davis provide an interesting sideshow to the Lonmin Marikana debacle. (Readers may recall that Xstrata helped facilitate ANC heavyweight Cyril Ramaphosa’s recruitment as Lonmin’s BEE partner, a situation that today places any number of question marks over the government and party leadership’s reaction to the Marikana strike.)
Although Xstrata still owns a significant slice of Lonmin, Davis has had even more pressing problems on his hands in recent weeks: the Marikana crisis coincided with a huge $33-billion takeover battle between international trading company Glencore and his London-listed company.
Davis first came to prominence 20 years ago as Eskom’s finance director. In that capacity, in the early 1990s he signed the secret – and increasingly controversial – contract between Eskom and (the local) Gencor (today’s BHP Billiton) in which Eskom guaranteed the company a huge electricity allocation for its Richard’s Bay aluminium smelters – at a staggering discount. For several years that deal has been causing Eskom (and its other, less-privileged, customers) enormous financial headaches.
In 1993, after signing the deal, Davis resigned from Eskom only to re-emerge a short while later as director of Gencor. Today many suspect it was a thank-you for signing the deal, but at the time, it was considered a win-win for both Eskom and Gencor since it absorbed some of Eskom’s then surplus-generating capacity and expanded a new South African industry.
Clearly, Gencor CEO Brian Gilbertson saw something he liked in Davis, and the duo expanded Gencor, changed its name to Billiton and listed the company on the London Stock Exchange in 1998. (See “Billiton has landed” in nose22.) Shortly afterwards, the duo merged Billiton with Australian mining giant BHP to form the largest mining company in the world, a status it has retained.
But the merger was not without controversy. As part of it, Gilbertson and Davis were granted huge bonuses and were allowed to cash in the share options they had built up within Billiton. This is not an uncommon procedure when companies get taken over; existing share options, even if due to vest only years later, are usually paid out immediately.
However, the situation was different in this case, since both Gilbertson and Davis were slated to take senior positions in the merged company and did not lose status in the merger, as often happens when a small company gets taken over by a bigger one. This situation was criticised at the time, but to no avail.
The current Glencore/Xstrata takeover is a distinct case of déjà vu – with a twist.
Once again, Davis was in the position of being an executive of the smaller company, Xstrata, being taken over by a larger company, the Swiss-based Glencore. Executives clearly thought they could again take advantage of the takeover situation to grab a big chunk of cash for themselves.
As part of the deal, the Xstrata executives were to be granted fabulous “retention bonuses” – in Davis’ case, an egregious $45 million (R364m).
Technically, it was a decision of the independent directors of Xstrata, but only the irrevocably naïve could believe the executives played no part in that decision, particularly given their history.
This time, however, the atmosphere in the recession-hit London financial district was totally different, and the criticism was swift and vociferous.
Glencore struggled to get shareholders to accept the deal, and what was supposed to be a “friendly merger” turned into a takeover. One of the changes was that Davis would not get such a huge payout, and that instead of becoming the CEO of the new, merged, company, he would leave within six months.
Finally, it seems, his greed has become intolerable. A bit late to make much difference to him – but just in time to give some perspective to the Marikana miners’ demand for a minimum wage of R12,500 per month.
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