Mining merger haggling leads to investors cashing in on shares surge

Investors cashed in their gains on commodities trader Glencore and miner Xstrata yesterday as the two firms haggled behind closed doors on the terms of their proposed merger.

The two FTSE 100 giants are discussing an all-share “merger of equals” that could create a company worth more than £50 billion, causing their shares to soar when news of the talks emerged last week.

It is thought there is still a sticking point over the premium Glencore is prepared to concede if shares in the new company are handed out. Xstrata shareholders have consistently said they will need to see a sweetener that recognises the company’s growth potential. Xstrata is expected to take a majority of seats on the board of a combined company. It would keep its chairman, City heavyweight John Bond, as well as its chief executive, Mick Davis, and its chief financial officer, Trevor Reid.

Yesterday shares in Glencore, which had risen 17 per cent over the previous three trading days, fell back 4.5 per cent to 460.8p as brokers said it might have to pay a premium of up to 20 per cent to satisfy Xstrata’s shareholders.

But Xstrata, which had jumped 20 per cent since news of the talks, fell 1.7 per cent to 1,261.5p after reports Glencore would offer 2.8 new shares for each Xstrata share, a premium of just 8 per cent on its share price before news of the merger talks broke.

HB Markets downgraded Xstrata to “sell”, saying: “The premium is on the light side, but we struggle to see that Glencore would agree to any significant upward revisions.”