Glencore and Xstrata Announce $90B Merger

Mining firm Xstrata has formally announced plans to merge with Glencore, the world’s largest commodity trader, in a deal valuing the new business at $90 billion.

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Xstrata, which could comprise $39 billion of the combined business, announced the merger at the same time it revealed a 20 percent increase in profits for 2011, to $5.9 billion.

But two of the top 10 shareholders in Xstrata — Standard Life Investments and Schroders — have already said they will vote against a takeover by Glencore, as they believe it undervalues their shares.

Glencore seeks to buy the remaining 66 percent of Xstrata for $41 billion in a deal designed to create a company to rival mining heavyweights like BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO).

The deal needs to be approved by 75 percent of shareholders excluding Glencore, which is barred from voting. Standard Life and Schroders together own 3.6 percent of Xstrata, but 5.6 percent of the shares needed for approval. Their stand may also persuade others to follow suit.

Broker Liberum Capital said in a note: “Only 16 percent of Xstrata’s register have to vote against the deal to block it, which means there is a significant risk Glencore’s proposal isn’t passed.”

Xstrata shareholders other than Glencore will hold 45 percent of the new company, even though Xstrata assets would comprise about 65 percent of the new group’s asset value.

Glencore will issue 2.8 new shares for every Xstrata share in a deal said to be a “merger of equals.” That ratio gives Xstrata shareholders a 15.2 percent premium on their closing share price last Wednesday, before word of the merger talks leaked.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com