The $90-billion merger between Swiss commodities trader Glencore International Plc and mining giant Xstrata Plc hinges on minority investors who could block this year's largest deal if Glencore does not top up the transaction with a little sweetener.
The blockbuster deal requires just 64 per cent of Xstrata's shareholders approval of the takeover, but shareholders holding just 16.48 per cent have the power to block the deal since Glencore, which already holds 34 per cent of Xstrata, cannot vote on the deal, according to the UK takeover rules.
Although Glencore's management and other shareholders, holding 37.2 per cent of Xstrata, have already assented to the deal, two of Xstrata's biggest shareholders have publicly voiced their concerns and said that they would vote against the "lop-sided" deal.
Glencore has offered to give 2.8 of its shares for each of one of Xstrata, which is a 15-per cent premium to the both companies' closing price on 6 February, a day before the merger was announced, and 8 per cent more than the price of Xstrata's and Glencore's stock that was traded at when the impending deal was first announced by Xstrata on 2 February.
The premium offered is below the 23-per cent average for 2011 mining deals, according to data compiled by Bloomberg, and analysts say that Glencore may have to raise the ratio to three to one.
In almost all mergers, the acquirer pays a premium for control, and although the Glencore-Xstrata merger is being billed as a merger of equals, the Glencore camp may contend that paying a small premium is justified since Xstrata has cornered most of the top management jobs including that of the CEO.