Xstrata is edging up in a falling market on hopes that Glencore will improve the terms of its merger offer for the company.
At the moment Xstrata shareholders are being offered 2.8 Glencore shares in exchange for each Xstrata shares, but Andrew Keen at HSBC said this was likely to be increased. He said 3.3 Glencore shares would be a fairer level, although it might not go that high. He said:
Any revision is likely to be the product of a negotiation between Xstrata shareholders and Glencore management. A move in the ratio from 2.8 to as high as 3.3 is unlikely to be readily volunteered, in our view, although purely on a share of net income basis for 2010/11, a ratio of at least 3.1 should apply.
In our view, Glencore wants this deal more than the recalcitrant end of Xstrata's register, and some form of a sweetener is likely to ensure the 75% voting threshold is reached. Our analysis of the share registers shows relatively little overlap.
There had been talk in the market last week about a possible increase, although Keen thinks any move may not happen until April, when the proposal documentation is sent to investors ahead of a vote in May.
In the market Xstrata is up 1p at 1222.5p while Glencore is down 2p at 436.35p.
