? Standard Life: 'Deal undervalues Xstrata'
? Schroders: 'Not compelling'
? $90bn tie-up offers 28% premium to Xstrata shares
? Xstrata executives offered top jobs in new firm
Plans for a $90bn (£57bn) merger between Xstrata and commodities trader Glencore have been dealt a major blow after two of the mining group's largest independent shareholders insisted the terms "clearly undervalued" Xstrata.
Standard Life, which holds 63.6m shares in Xstrata, or 1.92%, has issued a statement insisting it will oppose the combination on the terms proposed by the mining group's chief executive Mick Davis and Glencore.
"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," said David Cumming, head of equities at the fund manager.
"Consequently it is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved."
Schroders also said it would vote against the deal as it was currently "not compelling". Richard Buxton, head of equities at Schroders, said: "This is not acceptable. It is not compelling or attractive for Xstrata shareholders and we will vote against. If they keep describing it as a merger of equals, why don't Xstrata shareholders get 50%? We continue to think Xstrata's assets and growth profile are superior to Glencore. We had an opportunity to purchase Glencore shares at flotation and chose not to. That was the right decision."
The proposed share-based deal would offer Xstrata shareholders 2.8 new shares in Glencore. Despite being described as a "merger of equals", the deal values Xstrata at £39.1bn, a premium of almost 28% to its average price for the three months prior to the bid approach.
The combination to create the fourth largest global resources group was long anticipated even before Glencore joined Xstrata on the London stock market last year. The mining group is already 34% owned by Glencore and the two firms have headquarters in Switzerland. Both are shaped by deal-hungry chief executives ? Mick Davis at Xstrata and Ivan Glasenberg at Glencore ? who have been friends since their school days in South Africa.
However, the move by Standard Life and Schroders underlines determination among institutional investors not to allow too cosy a deal. Under current proposals, the merger would only go ahead if it received 75% approval among Xstrata shareholders excluding Glencore. That means rebel shareholders would have to speak for just 16.5% of shares in the mining group to derail the merger.
The two groups confirmed that the enlarged business, to be called Glencore Xstrata International, will be led by Davis while Glasenberg will serve as his "deputy CEO and president". Similarly, the finance director's role is to go to Xstrata's Trevor Reid, while Glencore's finance director Steven Kalmin is to serve as deputy.
Despite apparently taking the lesser executive roles, the Glencore team will remain a powerful force on the share register. The top 12 executives currently control almost a third of the commodity trading company.
There has already been some speculation about how relaxed Glasenberg will be about ceding control to Davis. Both are frequently described as "big egos". In an uncharacteristically deferential statement, the Glencore boss said: "I look forward to supporting Mick and working as part of what I am confident will be the leading team in the resources sector."
Overseeing what is likely to be a crowded and opinionated board will be Xstrata's existing chairman Sir John Bond, one of the FTSE 100's most experienced boardroom heads having served as chair of Vodafone and HSBC. Bond will be 71 in July.
Davis said the planned combination was "the logical next step for two complementary businesses" while Glasenberg said it created "a new powerhouse in the global commodities industry".
Despite being listed in London, where it will be one of the 10 largest businesses quoted on the stock market, the enlarged company, in common with its predecessor groups, will have very little presence in the UK. It will continue under Glencore's corporate structure, which involves being headquartered in Switzerland and incorporated in Jersey for tax reasons.
Davis said: "Sources of supply are diverging from traditional mining regions to more complex and disparate locations, with a range of new industry participants seeking access to markets. At the same time, demand growth has shifted from Europe, Japan and the US, to emerging Asian economies. The commodities value chain is becoming longer and more complex, creating opportunities for a company that can pre-emptively participate at every stage."
Source: http://www.guardian.co.uk/business/2012/feb/07/glencore-xstrata-merger-shareholder-opposes-deal
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