Anglo American Merger Plans

Introduction to the Issue

An influential City group is urging investors to oppose plans that would guarantee Anglo American executives a multi-million pound share trove as the company completes a $33 billion merger with Canada’s Teck Resources.

Warning on Executive Pay

The Investment Association’s IVIS voting advisory service has slapped a "red tip" warning on next month’s vote on changes to Anglo’s long-term incentive awards, which is the strongest possible warning about the resolution. This development comes days after rival miner BHP approached Anglo for the second time about a possible takeover before abruptly pulling away.

Details of the Merger

Anglo, the mining group that owns De Beers, wants to change its share allocations to ensure they pay out at least 62.5% of their value when the merger is completed. Institutional Shareholder Services, which recommended shareholders vote in favor of the merger itself, also recommended opposing the changes to the bonus system.

Concerns Over Bonus System

“Changing awards to take into account M&A factors not contemplated when the awards were initially granted is not considered inappropriate per se in the UK market,” said Institutional Shareholder Services in a report to clients. However, the change to the in-flight LTIP awards to ensure a minimum payout is tied to the completion of the merger transaction, which does not constitute good practice.

Response from Anglo American

An Anglo American spokesman said the proposed changes would result in an “even greater focus on shareholder interests”. The impact assessment declined to comment further on the Red Top Alert. The company’s plans have sparked concerns among investors, who are being advised to oppose the changes to the executive pay structure.