SLI and Schroders' Buxton to vote against Glencore-Xstrata deal

Xstrata’s fourth largest shareholder, Standard Life Investments, said it will vote against the recommended merger between the miner and Glencore because the deal “clearly undervalues” the miner.

Schroders' head of UK equities Richard Buxton told Reuters he supported SLI's position. Xstrata is the sixth largest holding in Buxton's £2.5bn Schroder UK Alpha Plus fund at 3.4% of the portfolio.

The merger of equals between Glencore and Xstrata, confirmed this morning, will create a $90bn resources giant that will combine Glencore's commodity trading strength with Xstrata's position as one of the world's largest miners of thermal coal, copper, nickel and zinc.

Standard Life Investments owns 63.6 million shares in Xstrata, equivalent to 2% of the company. It also has a smaller position in Glencore, equivalent to 0.3% of share capital.

The merger agreement will see Xstrata investors receive 2.8 Glencore shares for every share in the miner, a 15.2% premium over the 1 February closing share price and higher than some analysts had expected.

However, SLI's head of equities David Cumming (pictured) said it would take a material improvement in the offer terms for SLI to give its backing to the deal.

"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 Cumming.

"Consequently it is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved."

"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," Buxton said.

Glencore's shareholders will control 55% of the new company, which will be known as Glencore Xstrata International.

"We would have preferred the deal to have been done later when Xstrata had the better production profile out and we would have expected to get a better premium," said Jane Coffey, head of equities at Royal London Asset Management, which holds Xstrata but not Glencore.

"However, you always knew this deal was going to happen and with a 34% stake already held by Glencore we are not really in a position to be able to get a huge premium," Coffey said, speaking to CNBC.

Xstrata shares were down 2.9% at £12.25 shortly before midday, below the £12.90 at which they are valued by the deal.