Glencore-Xstrata deal meets shareholder opposition

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LONDON (Reuters) - At least two top 10 shareholders in miner Xstrata plan to vote against a takeover by commodities trader Glencore, threatening the creation of a powerhouse spanning mining, agriculture and trading.

Standard Life Investments and Schroders said on Tuesday the deal, the mining sector's biggest, to buy the remaining 66 percent of Xstrata for $41 billion, undervalued their shares.

The deal, designed to create a company to rival mining heavyweights such as BHP Billiton and Rio Tinto, needs to be approved by 75 percent of shareholders excluding Glencore, which is barred from voting.

Standard Life, the fourth largest investor in Xstrata, and Schroders together own 3.6 percent of Xstrata, but 5.6 percent of the shares needed for approval, according to Thomson Reuters data. Their stand may persuade others to follow suit.

"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," Schroders' Richard Buxton told Reuters.

Broker Liberum Capital said in a note: "Only 16 percent of Xstrata's register have to vote against the deal to block it, which means there is a significant risk Glencore's proposal isn't passed,"

Xstrata Chief Executive Mick Davis, who will be CEO of the enlarged company, admitted the two companies would have to work hard to bring some of his shareholders on board.

"We clearly have to now go to our shareholders and speak to them and take them through the transaction ... we've got a long gestation period, we recognize that," he told analysts.

Xstrata shareholders other than Glencore will hold 45 percent of the new company, to be named Glencore Xstrata International, even though Xstrata assets would comprise about 65 percent of the combined group's asset value.

Terms of the deal look set to spark tensions within investment houses which hold both Xstrata and Glencore stock.

Portfolio managers at a third top 10 investor are due to discuss the merits of the tie-up and the relative value for investors in each firm before deciding whether to reject or back the deal, a spokeswoman said, declining to be identified.

MERGER CLOUT

The new group, with mining assets from New Caledonia to the Democratic Republic of Congo, is expected to use its clout to look at other deals, including potentially a takeover of Anglo American.

"M&A is a space that you'd expect the combined group to be in," Davis told Reuters. "We have a combined entity which has much greater flexibility to be opportunistic and capture the right opportunities when they are there."

Anglo American CEO Cynthia Carroll declined to comment on the deal and when asked whether the deal signaled valuations had hit their lowest point said Anglo would be sticking to its plan of developing its pipeline of growth projects.

"Is there more and more interest in acquisitions? No question about it," she told Reuters in a telephone interview on the sidelines of a mining industry gathering in Cape Town.

Glencore will issue 2.8 new shares for each Xstrata share in a deal it said was a "merger of equals."

The ratio gives a 15.2 percent premium to Xstrata shareholders compared with its share price last Wednesday, before word leaked out about the merger talks, a joint statement said.

Xstrata chairman John Bond and Chief Financial Officer Trevor Reid will retain their posts, and Glencore CEO Ivan Glasenberg, a billionaire who owns 15.8 percent of Glencore, will be president and deputy CEO of the new company.

Some are skeptical that Davis and Glasenberg, two brash, hard-driven dealmakers from South Africa, will be able to work together as CEO and president of the combined group.

They have had a close and sometimes tense relationship as they both aggressively expanded their companies with strings of takeovers and marketing deals.

SURGE IN DEMAND

Bringing together Xstrata, the world's fourth-biggest diversified miner, and Glencore will create a group hoping to reap the reward of growing demand for commodities from China and other emerging economies.

Competition authorities are expected to have a hard look at the combined company, which will hold a big sway over markets like thermal coal, copper, zinc and ferrochrome.

"Many governments may take the opportunity to review Glenstrata's influence on their food and industrial and energy imports and exports so ... it might be forced to relinquish some of its other roles," said Neil Dwane, chief investment officer of RCM, a unit of Allianz Global Investors, an Xstrata shareholder.

Xtrata's Mick Davis was confident of antitrust approval, saying authorities in the past have always treated the two companies as one unit due to their close ties.

"There is no need for the case to be notified to the (European) Commission as it has already ruled that Glencore already controls Xstrata, said an antitrust lawyer who declined to be named because of the sensitivity of the matter.

"But this is a tricky situation, there are some overlaps, so the regulator may decide to take a fresh look."

The combined group expects synergies of at least $500 million and to boost earnings to Xstrata shareholders in its first full financial year.

The new group will be the world's biggest exporter of coal for power plants, top integrated zinc producer and would have had revenues of $209 billion and adjusted core profit of $16.2 billion had they been together during 2011.

The size of the deal surpasses Rio Tinto's $38 billion takeover of Alcan in 2007.

Xstrata shares fell 3.8 percent while Glencore declined 2.8 percent on Tuesday afternoon compared to a 2.1 percent fall in the sector.

($1 = 0.6331 British pounds)

(Additional reporting by Sinead Cruise, Chris Vellacott, Victoria Howley, Yun Chee Foo and Clara Ferreira-Marques; Editing by Chris Wickham and Elizabeth Piper)

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SEC weighs two money market fund proposals

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  The U.S. Securities and Exchange Commission logo adorns an office door at the SEC 

(Reuters) - The chairman of the Securities and Exchange Commission is eyeing two potential plans to bolster the stability of money market funds, but their fate remains uncertain due to internal disagreement at the SEC over the need for more regulations.

Last month, agency staff circulated early drafts for either a capital buffer or a floating fund valuation, both aimed at preventing runs on money market funds and investor losses in the $2.6 trillion industry, people familiar with the matter said.

Regulators began to focus on new rules for the money market fund industry after the Reserve Primary Fund "broke the buck" in 2008, at the height of the financial crisis, when its net asset value below the $1 mark.

In 2010, the SEC adopted a series of new rules in response to that event, including tightening credit quality standards, shortening the maturities of fund investments and imposing a new liquidity requirement.

The industry and several SEC commissioners have questioned whether any further changes are required.

One of the new plans, favored by some SEC staff and banking regulators, would consist of both a capital buffer requirement and a 30-day hold-back on redemption requests by investors.

Under that proposal, funds would need to maintain a 1 percent capital cushion and they would hold back 3 percent of investor funds for 30 days after a redemption request.

The alternative plan calls for a floating net asset value to help curb investor complacency over the stable $1-per-share value that funds currently quote.

The concepts were first discussed by SEC Chairman Mary Schapiro in a major speech to the brokerage industry last November.

The Wall Street Journal reported on Tuesday that the SEC would unveil the plans in the coming weeks.

SEC staff are hoping to put both plans out for public comment, but would anticipate only adopting one of the two proposals, people with knowledge of the matter told Reuters. The goal is to unveil them sometime in the spring.

Schapiro, the Federal Reserve and other members of the Financial Stability Oversight Council, have argued that more changes are needed to prevent a run on money market funds.

"The Chairman has long called for reform of money market funds to avoid the destabilizing events that occurred following the breaking of the buck of the Reserve Primary Fund in 2008," SEC spokesman John Nester said on Tuesday.

"As a first step of reform, the SEC adopted meaningful measures to increase the resiliency of money market funds by shortening their maturities and enhancing their liquidity. As a second step, the Chairman is advocating structural reforms to money market funds to address their susceptibility to runs and provide a buffer against losses," Nester said.

To put these latest proposed reforms out for comment, the SEC needs approval from at least three of the five commissioners.

But three commissioners have expressed some doubts about the need for more reforms, with at least some of them unlikely to even agree to propose a rule, let alone vote to implement one, one person familiar with their thinking said.

Part of their concern stems from the fact that the SEC already acted to put new rules on the books in 2010 and that the latest proposals might harm the industry.

"As far as I know, these issues were fully vetted in 2010," said Dan Gallagher, the SEC's newest commissioner, in an interview with Reuters last week. "There has to be data that shows the need to act in this space or data that shows that you don't. But I just haven't seen that yet."

Money market fund executives have said the proposals could drive investors out of money funds and into bank accounts and reduce a key source of credit for U.S. businesses.

Fidelity Investments has warned regulators that more than half of its money-fund clients would move some or all of their assets out of the investments if the net asset value of the funds were allowed to fluctuate.

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Bernanke repeats vow to shield U.S. from Europe fallout

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Tuesday renewed a pledge to prevent Europe's financial crisis from damaging the U.S. economy in testimony before Congress that mirrored remarks he made last week.

"We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy," Bernanke said in remarks prepared for delivery to the Senate Budget Committee.

The Fed chairman maintained a cautious tone on the U.S. outlook and did not refer to surprisingly strong U.S. jobs data released on Friday.

"We still have a long way to go before the labor market can be said to be operating normally," he said, employing language identical to remarks delivered on Thursday before the House budget panel.

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Tiger Airways in talks with regulators over grounding

Tiger Airways planes have been grounded in Australia by regulators on safety concerns

Tiger Airways will hold crisis talks with Australian regulators to try and counter safety claims and resume its domestic operations.

The Singapore-based low cost carrier's aircraft were grounded in Australia on Saturday by the Civil Aviation Safety Authority (CASA) on safety concerns.

The disruptions come at the start of peak school holiday season, which means less intense price competition.

Shares in Tiger Airways in Singapore plunged almost 20% on Monday.

The airline's domestic Australian flights will be grounded until July 9, but its flights to Singapore are not affected.

Shares of competitors rose sharply as a result, with Virgin Australia jumping 10.5% and Qantas climbing 6.5%.

Chief executive Tony Davis has flown to Australia for talks with the CASA.

The airline said in a statement to the Singapore Stock Exchange that he had been charged with getting its planes back in the air.

Tiger said Mr Davis was going to focus on "assisting Tiger Airways Australia to resume operations as soon as possible."

Tiger operates 10 Airbus A320s domestically in Australia. It moves about 9,000 passengers a day on 60 domestic flights.

It is the first time in Australia's aviation history that an entire fleet has been grounded.

Safety concerns

The grounding of the fleet came after the CASA said its concerns about safety had gone unaddressed by Tiger.

"CASA believes permitting the airline to continue to fly poses a serious and imminent risk to air safety," the regulator said in a statement.

The regulator said it had been closely monitoring the airline and had sent a notice threatening to suspend or cancel its licence over the safety issues.

"The suspension of Tiger Airways Australia follows the issue of a show cause notice to the airline in March 2011."

That notice included instructions for Tiger to improve the proficiency of its pilots, give them more training and to address issues such as fatigue management.

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Sony ranks as Asia's top brand, says Campaign magazine

Despite Asia's much hyped appetite for luxury goods, no designer brands were in the the top 25.

Sony has been ranked top in a survey of Asia's most valuable brands by the marketing magazine Campaign.

The company gained the top spot despite hacking attacks earlier this year that compromised the personal details of 100 million PlayStation users.

Japanese and South Korean consumer electronics brands occupied the top five slots, with Sony trailed by Panasonic, LG, Samsung and Canon.

No Chinese brand names cracked the top 100.

White goods and electronics maker Haier was the highest Chinese brand at 102.

"This year's survey reiterated the challenges Chinese and Indian brands are facing to gain consumer recognition beyond their home markets," the report said.

The highest ranked Indian brand at 89 was Amul, which makes milk products and ice cream.

Source: Campaign

The top five brands were unchanged from last year, reflecting their everyday appeal among Asia's shoppers.

And despite Asia's much hyped appetite for luxury goods, there were no luxury brands in the top 25. Chanel, Rolex and BMW ranked 30th, 42nd and 49th respectively.

Even though Prada listed on the Hong Kong stock exchange this year, it fell almost 100 places from last year's survey to rank 348th.

In China, Taiwan instant noodle brand Master Kong was the most commonly recalled brand after Sony.

The survey was conducted by market research firm TNS, which surveyed 3,322 consumers in Australia, China, India, Japan, Hong Kong, Malaysia, Singapore, Taiwan, South Korea and Thailand.

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Japan finds rare earths in Pacific seabed

The number of seabed mining applications is a growing focus for environmentalists' concern

Japanese researchers say they have discovered vast deposits of rare earth minerals, used in many hi-tech appliances, in the seabed.

The geologists estimate that there are about a 100bn tons of the rare elements in the mud of the Pacific Ocean floor.

At present, China produces 97% of the world's rare earth metals.

Analysts say the Pacific discovery could challenge China's dominance, if recovering the minerals from the seabed proves commercially viable.

The British journal Nature Geoscience reported that a team of scientists led by Yasuhiro Kato, an associate professor of earth science at the University of Tokyo, found the minerals in sea mud at 78 locations.

"The deposits have a heavy concentration of rare earths. Just one square kilometre (0.4 square mile) of deposits will be able to provide one-fifth of the current global annual consumption," said Yasuhiro Kato, an associate professor of earth science at the University of Tokyo.

The minerals were found at depths of 3,500 to 6,000 metres (11,500-20,000 ft) below the ocean surface.

Environmental fears

One-third of the sites yielded rich contents of rare earths and the metal yttrium, Mr Kato said.

The deposits are in international waters east and west of Hawaii, and east of Tahiti in French Polynesia.

Why rare earths are so important to the world's economy

Mr Kato estimated that rare earths contained in the deposits amounted to 80 to 100 billion tonnes.

The US Geological Survey has estimated that global reserves are just 110 million tonnes, found mainly in China, Russia and other former Soviet countries, and the United States.

China's apparent monopoly of rare earth production enabled it to restrain supply last year during a territorial dispute with Japan.

Japan has since sought new sources of the rare earth minerals.

The Malaysian government is considering whether to allow the construction of an Australian-financed project to mine rare earths, in the face of local opposition focused on the fear of radioactive waste.

The number of firms seeking licences to dig through the Pacific Ocean floor is growing rapidly.

The listed mining company Nautilus has the first licence to mine the floor of the Bismarck and Solomon oceans around Papua New Guinea.

It will be recovering what is called seafloor massive sulphide, for its copper and gold content.

The prospect of deep sea mining for precious metals - and the damage that could do to marine ecosystems - is worrying environmentalists.

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Australian retail sales dip, rates to be kept on hold

Analysts were expecting a rise in retail sales

Australian sales of retail goods, such as clothes and shoes, fell unexpectedly in May suffering the biggest drop in seven months.

Retail sales dropped 0.6% compared to the previous month, according to the bureau of statistics. Most analysts had expected a gain of 0.3%.

Other figures out on Monday showed that new home approvals also fell for a second straight month.

The data will strengthen arguments for keeping interest rates on hold.

The Australian dollar weakened slightly after the figures were released.

'Softness across sectors'

The Reserve Bank of Australia (RBA) meets on Tuesday to decide whether to raise interest rates from the current level of 4.75%.

Analysts say that weak consumer demand translated into the drop in retail sales.

"The softness was across sectors and regions, so there's little sign of the pick-up in economic momentum that the RBA was expecting," said Brian Redican of Macquarie Bank.

"The consumer clearly doesn't need any more encouragement from the RBA to stay on the sidelines. It lessens the need for another hike."

In April, retail sales rose 1.2%, revised up from 1.1%. Analysts were expected a pull back after the big bounce but the drop was much more than expected.

Making matters worse is the data on building approvals which fell 7.9% in May.

"All up it's a pretty weak set of data and not encouraging at all," said Michael Turner of RBC Capital Markets.

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