Investors resist Glencore-Xstrata merger


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The Independent Online

A multibillion-pound tie-up set to create the world's fourth largest natural resources firm met instant criticism today as two major UK investors said they would vote against the move.

Mining heavyweights Glencore and Xstrata want to merge and form a company worth 90 billion US dollars (£57 billion) - but must secure the backing of 75 per cent of Xstrata and Glencore shareholders in separate votes, as well as regulatory approval, to proceed.

Edinburgh-based Standard Life Investments, which has a 2.2 per cent holding in Xstrata, and Schroders came forward within hours of the announcement to express concerns over the level of Xstrata's proposed stake - 45 per cent - in the proposed business and refused to back the deal.

David Cumming, head of equities at Standard Life Investments, said the deal undervalues Xstrata's assets and added: "It is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved."

Reported in The Guardian, 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 per cent?"

The move echoes concerns of shareholders in security group G4S, which last year scrapped a proposed multibillion-pound takeover of a Danish cleaning firm amid shareholder pressure.

Xstrata and Glencore - among the top 20 firms on the London stock market - will have operations in 33 countries and should be better able to compete against bigger rivals BHP Billiton and Rio Tinto if the merger is backed by shareholders.

Glencore, the world's biggest commodities trader, with products including oil, coal, gold and foodstuffs, has been circling Xstrata for a number of years and has already built up a 34 per cent stake.

Last year, Glencore became the first company in 25 years to be fast-tracked into the FTSE 100 Index in London's largest flotation.

Anglo-Swiss firm Xstrata is the world's largest exporter of thermal coal and also produces copper, nickel and zinc. It also has a lead smelter in Kent which employs around 100 staff.

Glencore chief executive Ivan Glasenberg said: "We have a fantastic opportunity to create a new powerhouse in the global commodities industry."

Mr Glasenberg would be deputy chief executive in the new firm, with the top job going to current Xstrata boss Mick Davis.

The planned deal values Xstrata at 39.1 billion US dollars (£24.8 billion) and represents a 15.2 per cent premium on its share price on February 1, the day before the pair confirmed talks over a potential tie-up.