Standard Life refuses to back $90bn Glencore and Xstrata merger

By Scott Reid
Published on Wednesday 8 February 2012 00:07

A DEAL to create a $90 billion (£57bn) powerhouse spanning mining, agriculture and commodities trading came under attack from major shareholders yesterday, including Standard Life Investments (SLI).

Glencore and Xstrata want to merge to create a company to rival the likes of BHP Billiton and Rio Tinto, but they must secure the backing of 75 per cent of Xstrata and Glencore shareholders in separate votes, as well as regulatory approval, to proceed.

However, SLI – which ranks as the fourth-largest investor in Xstrata – and Schroders hit back saying the terms of the deal undervalued their shares. The two investment managers own 3.6 per cent of all Xstrata shares, but 5.6 per cent of the shares that qualify to vote on the deal.

David Cumming, head of equities at SLI, said the proposed deal undervalues Xstrata’s assets, adding: “It is our intention to vote against the deal, unless the terms for Xstrata shareholders are materially improved.”

Schroders’ Richard Buxton added: “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.”

Xstrata chief executive Mick Davis, who would be head of the enlarged company, admitted the two companies would have to work hard to bring some of his investors on board. “We clearly have to now go to our shareholders and speak to them and take them through the transaction… we’ve got a long gestation period, we recognise that.”

Glencore plans to issue 2.8 new shares for each Xstrata share in a deal it described as a “merger of equals”.

Xstrata shareholders other than Glencore, which already has a 34 per cent stake in the miner, will hold 45 per cent of the new firm, to be named Glencore Xstrata International.

Sheridan Admans, investment research manager at the Share Centre, said investors should “hold fire” over the merger.

“As any renewed offer can change the position of shareholder interests, we would suggest investors watch this very closely. We believe this could rumble on for some time.”

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