Analysts at Jefferies said on Friday afternoon that the new terms of Glencore's bid for Xstrata - which is now being considered as a takeover and not a merger - should be enough for please Xstrata.

Glencore and Xstrata both adjourned their shareholder meetings today after Glencore raised its exchange ratio to 3.05 Glencore shares per Xstrata share (up from 2.8 previously). The new proposal envisages changes to the proposed governance arrangements, including Glencore Chief Executive Officer (CEO) Ivan Glasenberg assuming the same role at the combined group.

"Based on our analysis, the 9% increase in the proposed ratio is likely enough of a premium for a change of control (which is effectively what is being proposed), especially when we consider that the new proposed ratio represents a 22% premium to the ratio of 2.495x at yesterday's close," Jefferies said.

However, Xstrata released a statement this afternoon, saying that the new proposal lacked "sufficient information on key elements". The miner said that the 22% premium is "significantly lower than would be expected in a takeover."

Nevertheless, Jefferies said that the combined Glencore-Xstrata entity would be one of its "top picks" if Xstrata approves the takeover.

The broker said: "We expect the merged Glencore Xstrata to avoid investment in high-cost, low-return organic growth projects and instead use a significant portion of its operating cash flow to pay a substantial dividend (we estimate a 2015 dividend yield of at least 8% on the current Glencore share price). A high dividend payment would likely be supportive of the merged company's share price, and a resulting premium equity valuation would give the merged company a highly valued currency to use to create value via M&A."

"This is a unique company in this regard, and, when the dust settles, would be one of our top picks in the sector."

BC

Related share prices
Xstrata (XTA) share price
Glencore Xstrata (GLEN) share price