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 per cent of Xstrata for $41 billion undervalued their shares.
The two own 3.6 per cent 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 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.
| MAKING IT BIG |
| * $41 billion to be paid by Glencore to buy two-thirds of Xstrata that it does not own in an all-share deal |
| * 2.8 new shares to be issued by Glencore for each Xstrata share |
| * 2,964,692,076 Xstrata shares are in issue of which 1,010,403,999 are held by Glencore |
| * 66,257,054 additional Xstrata shares will be created by the exercise of options linked to deferred bonus schemes |
| * 6,922,713,511 Glencore shares are in issue. It will have to pay 5,657,526,366 new shares for the Xstrata shares it does not own |
| * $41 billion is the worth of those new shares, based on Monday’s closing prices |
| * 12.6 billion shares will make up the enlarged Glencore, of which Xstrata shareholders other than Glencore will own 45% |
| * $90 billion will be the market value of the enlarged company based on Monday’s closing prices |
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 per cent premium to Xstrata shareholders compared with its share price last Wednesday before word leaked out about the merger talks, a joint statement said.
Xstrata chairman John Bond and Chief Financial Officer Trevor Reid will retain their posts, and Glencore CEO Ivan Glasenberg, a billionaire who owns 15.8 per cent of Glencore, will be president and deputy CEO of the new company.
Xstrata shareholders other than Glencore, which already has a 34 per cent stake in the mining group, will hold 45 per cent of the new company, to be named Glencore Xstrata International.
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 $500 million and to be earnings accretive to Xstrata shareholders in its first full financial year.
“This is a natural merger which will realize 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.
