Glencore will issue 2.8 new shares for each Xstrata share in a deal they called as a “merger of equals”.
According to a joint statement, the ratio will be a 15.2 per cent premium to Xstrata shareholders if compared with its share price last week the rumors about the merger talks started.
The deal would require about $90bn (£56bn), of which Xstrata would comprise $39bn.
The announcement came as Xstrata revealed a 20% increase in profits for 2011, to $5.9bn (£3.8bn), says BBC.
“A merger between Glencore and Xstrata offers a unique opportunity to create a new business model in our industry to respond to a changing environment,” said Xstrata chief executive Mick Davis, appointed CEO of the new the new company which is to be named “Glencore Xstrata International PLC”. “It is the logical next step for two complementary businesses.”
He added: “M&A is a space that you’d expect the combined group to be in,” Davis told Reuters. “We have a combined entity which has much greater flexibility to be opportunistic and capture the right opportunities when they are there.”
“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,” Schroders’ Richard Buxton told reporters.
Broker Liberum Capital added: “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.”
Anglo American CEO Cynthia Carroll refused to comment on the deal and when asked whether the deal means the lowest point of valuations responded that Anglo would be sticking to its plan of developing its pipeline of growth projects.
“Is there more and more interest in acquisitions? No question about it,” she told reporters.
However, some experts remain skeptical when the deal is concerned. They argued whether Davis and Glasenberg, two brash, hard-driven dealmakers from South Africa, will be able to work together as CEO and president of the combined group.
The movements in the share prices indicate some disappointment in the markets that the premium being offered isn’t as high as some had hoped.
Two major Xstrata shareholders announced they are not agree with the deal as it undervalues their shares.
“Although we see some merit in the merger of Xstrata and Glencore the proposed exchange ratio clearly undervalues Xstrata’s assets and future earnings contribution,” said David Cumming, who owns a little more than 2 percent of Xstrata stock.
“Consequently it is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved,” he added.
BlackRock Investment Management, which has at its disposal 6 percent of Xstrata, refused to comment, while a spokesman for Legal & General Investment Management, a 3 percent owner, said the firm was figuring out its position, says Boston Globe.