Xstrata-Glencore deal opposed by leading investors

Feb 08, 2012
<p>Standard Life and Schroders have come out publicly against the terms of the merger</p>

The $90 bn mega-merger between Xstrata and Glencore is facing stiff opposition from shareholders as marketing for the deal gets under way.

On Tuesday, Xstrata and Glencore confirmed the two companies were planning an all-share merger to create a ‘powerhouse’ in the commodities industry, following leaked reports last week.

The deal would see Glencore exchange 2.8 shares for each Xstrata share, which represents a 28 percent premium over Xstrata’s average price in the three months before the bid was announced.

But two of Xstrata’s largest shareholders – Standard Life and Schroders – have come out publicly against the deal.

Public opposition

Standard Life, which owns a 2 percent stake in Xstrata, has released a statement saying the merger terms undervalue Xstrata.

‘Although we see some merit in the merger of Xstrata and Glencore, the proposed exchange ratio clearly undervalues Xstrata’s assets and future earnings contribution,’ comments David Cumming, head of equities at Standard Life Investments, in the statement.

‘Consequently it is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved.’

Schroders has voiced similar concerns. The investment firm holds 1.46 percent of Xstrata.

‘I’m in complete agreement with Standard Life and we intend to do exactly the same,’ Richard Buxton, head of equities, told Reuters yesterday.

‘This is a fabulous deal for Glencore. It’s probably a great deal for the Xstrata management, but it’s a poor deal for Xstrata’s majority shareholders.’

Schroders was contacted by IR Magazine but did not want to comment beyond the Reuters story.

Davis hits back

Mike Davis, CEO of Xstrata, attempted to calm worries over a shareholder revolt on a conference call yesterday, saying the majority of shareholders he had spoken to prior to the official announcement back the merger.

While most investor discussions take place behind closed doors, UK shareholders showed their readiness to speak via the press last November when a slew came out publicly against G4S’ £5.2 bn ($8.2 bn) bid for ISS.

G4S later abandoned the bid and admitted it had not focused enough on premarketing the takeover to investors.

Davis and Ivan Glasenberg, the CEO of Glencore, both appeared at Xstrata’s preliminary results announcement on Tuesday to officially unveil the merger.

Under the terms of the agreement, Davis would become CEO of the combined company, while Glasenberg would be deputy CEO.

The merger would create a powerful player in the global commodities industry by combining Xstrata’s mining assets with Glencore’s trading business.

The new company would be a ‘super-major with a unique business model,’ said Davis at the announcement.

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