Commodities trader Glencore agreed on Tuesday to buy the remaining 66 percent of miner Xstrata for $41 billion in a record deal to create a powerhouse spanning mining, agriculture and trading.

In what has been billed as a merger of equals, Glencore, the world's largest diversified commodities trading house, and Xstrata will form a company worth $90 billion to rival other mining heavyweights such as BHP Billiton and Rio Tinto.

The new group, which will have mining assets from New Caledonia to the Democratic Republic of Congo, are expected to use their combined clout to look at other deals, including potentially a takeover of Anglo American, analysts say.

M&A is a space that you'd expect the combined group to be in, Xstrata chief executive Mick Davis, who will be CEO of the enlarged Glencore, told Reuters.

We have a combined entity which has much greater flexibility to be opportunistic and capture the right opportunities when they are there.

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

The ratio is 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.

Standard Life Investments, the fourth largest investor in Xstrata, said it intended to vote against the deal because it clearly undervalues the company's assets and future earnings potential.

Consequently it is our intention to vote against the deal unless the merger terms for Xstrata shareholders are materially improved, David Cumming, Head of Equities, Standard Life Investments said in a statement.

Standard Life holds 63.6 million shares in Xstrata.

Some Xstrata shareholders had demanded a strong sweetener over the past few days but several analysts still expected them to warm to the deal, even though the premium is well below the typical 20 percent to 30 percent level in the mining sector.

With Xstrata getting the three top jobs and a small premium we fail to see how Xstrata shareholders have come out poorly here. They gain access to some very fast growing assets and a world class trading platform, said Liberum analyst Dominic O'Kane in a note.

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.

Xstrata shareholders other than Glencore, which already has a 34 percent stake in the mining group, will hold 45 percent of the new company, to be named Glencore Xstrata International.


Bringing together Xstrata, the world's fourth-biggest diversified miner, and Glencore will create a group looking to ride an extended surge in demand in coming years for commodities from China and other emerging nations.

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

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.

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

This is a natural merger which will realize immediate and ongoing value from marketing the combined group's products to maximize arbitrage opportunities, blending, swapping and storing to meet customer needs more exactly, Glasenberg said.

As the world's biggest exporter of coal for power plants and a top copper producer, the combined firm aims to have the bulk to compete with mining sector leaders BHP Billiton, Vale and Rio Tinto.

It would have had revenues of $209 billion and adjusted core profit of $16.2 billion they had been together during 2011.

The deal is the largest in the mining sector since Rio Tinto's takeover of Alcan in 2007.

Xstrata shares fell 2.3 percent while Glencore rose 1.8 percent in early trading on Tuesday compared to a 1 percent fall in the sector.

($1 = 0.6331 British pounds)

(Additional reporting by Sinead Cruise Editing by Erica Billingham and Elizabeth Piper)