OPPOSITION: A woman demonstrates in front of Swiss commodities trader Glencore headquarters in Zug in October last year to warn about the possible environmental impact of Glencore's and Swiss mining company Xstrata's activities PICTURE: REUTERS

The road to the Xstrata-Glencore merger is getting decidedly rocky. Shareholders are becoming increasingly sceptical of the terms of this "merger of equals" and irritation is growing over the possibility that Xstrata CEO Mick Davis will take a payout of almost £14-million (R167-million) if the deal goes ahead.

Analysts are also pondering the effects that this new behemoth could have on commodities prices, with its total control of entire supply chains of bulk commodities, minerals and foodstuffs.

Just hours after the merger deal was announced, two long-term UK institutional shareholders, Standard Life and Schroders, who together own 3.6% of Xstrata, said they would vote against it.

They say the deal, which has Glencore paying $41-billion to get control of the 66% of Xstrata it does not already own, undervalues their shares. The deal has Xstrata shareholders getting 2.8 new shares for each Xstrata share, with a joint statement put out by the two companies describing this as a 15.2% premium for Xstrata shareholders. But, depending on when, and over what period the companies' share prices and relative values are compared, that premium has also been determined to be as low as 8%.

Glencore will own 55% of the new company - to be called Glencore Xstrata International (GXI) - but Xstrata's assets will make up 64% of it. Disgruntled shareholders argue that Xstrata's mining assets have a better earnings potential than Glencore's mostly commodities-trading business, whose earnings before interest and tax fell 18% last year.

Davis's argument is that the new company will be earnings accretive - the combined operations will provide a better return for both sets of shareholders than is presently the case; the new whole will be superior to the sum of its parts.

But one cynical explanation for the deal going ahead is the size of the windfall Davis is entitled to.

His contract at Xstrata contains a "change of control" clause, which gives him an amount equal to his prior year's salary and bonuses - about £5.7-million (R68-million). There is little likelihood of him actually taking this money, however, since he is going to remain at the helm of the new entity.

But he is likely to take the estimated £8-million (R95.9-million) worth of long-term incentive-plan share options that vest immediately and in full upon any takeover.

Glencore CEO Ivan Glasenberg is not due a payout from the deal.

One of the biggest headaches facing Glasenberg and Davis is likely to be caused by the competition authorities and governments in the countries in which Xstrata and Glencore mine and farm, and to which they market.

Xstrata is a large diversified miner that takes minerals and metals out of the ground and sells them to whoever wants them at an agreed price; Glencore trades its own commodities and those of other companies, essentially finding markets for goods and goods for markets. Glencore also stores, ships, refines and processes goods, and is a miner and farmer in its own right.

The proposal is that GXI would adopt the Glencore business model, but the added commodity base of Xstrata would give it the power, according to Alex Brummer of the UK Daily Mail, "to control the prices of all manner of everyday household goods".

The red flag for competition authorities and governments will be the potential GXI will have to withhold much-needed shipments of commodities like coal, copper, zinc and ferrochrome, and so create escalated demand and inflate prices.

It would not be the first time Glasenberg and Davis have done this. In 2003, Xstrata paid $2.9-billion for an Australian copper and coal company called MIM Holdings, which had estimated the price of its coking coal at $45 a ton. The coal was to be sold to Asia through Glencore's trading arm. According to the Wall Street Journal, Glasenberg and his team analysed mine production data, as well as information on what was coming in on ships and what was stocked in ports, and they figured out that Asian steelmakers were about to run out of coal. Xstrata then refused to sell at the benchmark price of $56 to $59 a ton negotiated by the BHP Billiton-Mitsubishi Alliance, holding out for months until desperate Indian, Japanese and Korean steelmakers finally agreed to pay $135 a ton.