Top executives at Glencore and Xstrata are hammering out the final details of a proposed $80 billion merger, including the premium on offer by the commodities trading giant to secure approval from the miner's shareholders. Sources involved in the talks have told Reuters the sweetener is likely to be "high single digit to low double digit".
One source familiar with the companies said a ratio of 2.7 to 2.8 Glencore shares per Xstrata share was currently on the table, implying a premium of roughly 8 percent based on last Wednesday's closing price. "I think a 2.8 ratio is relatively modest, but reasonable," said Nik Stanojevic, analyst at Brewin Dolphin. "Xstrata is not a takeout target for anyone else on account of Glencore's stake."
Xstrata, the world's fourth-largest diversified miner, announced last week that it was in discussions with Glencore, already its single largest shareholder, a move expected ever since Glencore's $10 billion listing last May. The premium on offer from Glencore, which is expected to detail the terms of the all-share deal as early as Tuesday, has been a point of disagreement in the past, and Xstrata shareholders have consistently said they will need to see a sweetener that recognises the company's growth potential.
Mark Kelly, of London-based financial services firm Olivetree Securities, said Glencore could still tweak the premium a little beyond 2.8 if it needed to. "I would expect that sufficient diligence has been done with shareholders to ensure that whatever comes out gets done," he said.
At 1500 GMT, Glencore's shares had fallen four percent and Xstrata was down 2 percent, compared with a 0.8 percent decline for the FTSE350 mining index. Some independent Xstrata shareholders have told Reuters that they must be compensated for loss of the company's long-term growth.
"Xstrata has higher quality assets with better growth prospects over the next five and ten years than Glencore," said Richard Buxton, head of UK equities at fund manager Schroders. "We therefore need to be adequately compensated for the dilution of that quality and growth."
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