Cumming and Buxton to vote against Glencore/Xstrata deal

Glencore and Xstrata  have agreed an all-share merger worth $90 billion, marking the mining industry's biggest ever deal but this has offered little comfort to Schroders and Standard Life Investments.

The agreement will create a commodities powerhouse that spans across mining, agriculture and trading.

Glencore, the world's largest diversified commodities trading house, has agreed to issue 2.8 new shares for every Xstrata share. The deal has been dubbed a 'merger of equals'.

However, Standard Life Investments is does not believe this to be the case. According to a shareholder register dated 11 November the firm held around 44 million shares in Xstrata representing a 1.48% stake. The interest was held across range of its funds, including its Global Absolute Return strategy.

The firm's head of equities, David Cumming (pictured), believes the offer undervalues Xstrata.

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

Meanwhile the firm represents the sixth biggest holding the Schroder UK Alpha Plus fund managed by Richard Buxton. According to weekend press reports, Schroders also believes the offer undervalues the firm and Buxton told Reuters this morning that he would be voting against the deal.

'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.

The deal

As analysts expected, the ratio put forward and agreed upon by Glencore and Xstrata represents a 15.2% premium to Xstrata shareholders, compared with its share price last Wednesday before news about the merger broke.

'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,' the two firms said in a joint statement.