Major Xstrata investors to fight Glencore merger

Two leading shareholders pledged to oppose the much-anticipated $90bn (£57bn) merger between Xstrata and Glencore yesterday as it was finally announced.

Standard Life Investments, Xstrata's fourth-largest shareholder with a 2.15 per cent stake, and Schroders, with 1.45 per cent, both believe the deal – which offers Xstrata investors a 15.2 per cent 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," said Standard Life's head of equities, David Cummings. "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 per cent premium to their closing price last Wednesday, before rumours of the deal leaked.

Richard Buxton, Schroders head of UK equities, added: "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 opted to implement the merger using a scheme of arrangement, which requires 75 per cent of shareholders to agree – as opposed to a typical offer process, which only needs 50 per cent.

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

The deal will create the world's fourth biggest mining group – behind BHP Billiton, Rio Tinto and Brazil's Vale – with a focus on coal, copper, nickel and zinc.