Big shareholders come out against mining mega-deal

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Standard Life Investments, Xstrata's fourth-largest shareholder with a 2.15% stake, and Schroders, with 1.45%, both believe the deal - which offers Xstrata investors a 15.2% premium - significantly undervalues the miner.

"Although we see some merit in the merger, the proposed exchange ratio clearly undervalues Xstrata's assets and future earnings contribution," Standard Life head of equities David Cummings said.

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

If the merger goes ahead, the resulting company will be called Glencore Xstrata International.

Under the agreement, Xstrata investors would receive 2.8 Glencore shares for every Xstrata share, a 15.2% premium to their closing price last Wednesday, before rumours of the deal leaked into the market.

Richard Buxton, Schroders' head of UK equities, said: "This is a fabulous deal for Glencore, probably a great deal for Xstrata's management, and a poor deal for Xstrata's majority shareholders and we certainly intend to vote against it at the current ratio."

Xstrata and Glencore have chosen to implement the merger using a scheme of arrangement, which requires 75% of shareholders to agree - as opposed to a typical offer process, which needs only 50%.

Glencore already owns 34% of Xstrata and will be unable to vote its holding on the deal. As a result, only 16.4% of Xstrata's shareholders need to vote against the deal to block it. Schroders and Standard Life own a combined 3.55% stake.

Mick Davis and Ivan Glasenberg, the bosses of Xstrata and Glencore, respectively, were putting a brave face on the chances of the deal succeeding
this morning.

"One recognises that we have to spend time with shareholders," said Davis, adding that the merger would "create a unique animal able to capture value right across the spectrum" and expressing confidence of getting the necessary shareholder acceptances for the deal to proceed.

Xstrata also announced its full-year results today, revealing a 23% jump in pre-tax profits to $8.15 billion, as revenues increased by 11% to $33.88 billion. Xstrata's shares fell 3% while Glencore's were 0.5% lower.