No sooner was the biggest ever merger in the mining sector announced than it met opposition.
Miner Xstrata is to be taken over by commodities trader Glencore, but two major shareholders — Standard Life Investments and Schroders — have said they will vote against the deal as it undervalues their shares.
Together they own 5.6 percent of the shares needed for approval. It was not clear if others would join them.
Schroders’ Richard Buxton explained: “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.”
A deal would create a powerhouse spanning mining, agriculture and trading with mining assets from New Caledonia to the Democratic Republic of Congo and would put Glencore-Xstrata among the world’s top mining groups in terms of the total value of their shares.
But before that can happen 75 percent of the companies’ shareholders have to approve it.
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’s chief executive Mick Davis admitted the two companies will have to work hard to get the support of some of the shareholders.
“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,” he told analysts.
In another potential speed bump, competition authorities are expected to have a hard look at the combined company, which will hold a big sway over markets like thermal coal, copper, zinc and ferrochrome.
However there is already speculation of further takeovers in the sector as mining companies look to growing demand for commodities from China and other emerging nations.