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London- Two top 10 shareholders in miner Xstrata said on
Tuesday they would vote against a takeover by commodities trader Glencore,
threatening the industry’s biggest deal to create a powerhouse spanning mining,
agriculture and trading.
Standard Life Investments, the fourth largest investor in
Xstrata, and Schroders head of UK equities said the deal to buy the remaining
66% of Xstrata for $41bn undervalued their shares.
The two own 3.6% of Xstrata, according to Thomson Reuters
data. Their statements may persuade others to follow suit and block Glencore’s
ambition to create a company to rival mining heavyweights such as BHP Billiton
[JSE:BIL] and Rio Tinto .
“I’m in complete agreement with Standard Life and we intend to
do exactly the same. 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,” Shroders’ Richard Buxton told Reuters.
The new group, with mining assets from New Caledonia to the
Democratic Republic of Congo, is expected to use its clout to look at other
deals, including potentially a takeover of Anglo American, analysts say.
“M&A is a space that you’d expect the combined group to
be in,” Xstrata chief executive Mick Davis, who will be CEO of the enlarged
Glencore, told Reuters.
“We have a combined entity which has much greater
flexibility to be opportunistic and capture the right opportunities when they
are there.”
Glencore will issue 2.8 new shares for each Xstrata share in
a deal it said was a “merger of equals”.
The ratio is a 15.2% premium to Xstrata shareholders
compared with its share price last Wednesday before word leaked out about the
merger talks, a joint statement said.
Xstrata chairperson John Bond and Chief Financial Officer
Trevor Reid will retain their posts, and Glencore CEO Ivan Glasenberg, a
billionaire who owns 15.8% of Glencore, will be president and deputy CEO of the
new company.
Xstrata shareholders other than Glencore, which already has
a 34% stake in the mining group, will hold 45% of the new company, to be named
Glencore Xstrata International.
Surge in demand
Bringing together Xstrata, the world's fourth-biggest
diversified miner, and Glencore will create a group looking to ride an extended
surge in demand in coming years for commodities from China and other emerging
nations.
Competition authorities are expected to have a hard look at
the new company, which will have a big sway over key markets like thermal coal,
copper, zinc and others.
“Many governments may take the opportunity to review
Glenstrata's influence on their food and industrial and energy imports and
exports so ... it might be forced to relinquish some of its other roles,” said
Neil Dwane, chief investment officer of RCM, a unit of Allianz Global
Investors, an Xstrata shareholder.
The combined group expects synergies of at least $500m and
to be earnings accretive to Xstrata shareholders in its first full financial
year.
“This is a natural merger which will realise immediate and
ongoing value from marketing the combined group's products to maximise
arbitrage opportunities, blending, swapping and storing to meet customer needs
more exactly,” Glasenberg said.
As the world’s biggest exporter of coal for power plants and
a top copper producer, the combined firm aims to have the bulk to compete with
mining sector leaders BHP Billiton, Vale and Rio Tinto.
It would have had revenues of $209bn and adjusted core
profit of $16.2bn they had been together during 2011.
The deal is the largest in the mining sector since Rio
Tinto's takeover of Alcan in 2007.
Xstrata shares fell 2.3% while Glencore rose 1.8% in early
trading on Tuesday compared to a 1% fall in the sector.
