LONDON Top shareholders in Anglo-American's London shares said Xstrata's proposed merger was unlikely to succeed unless a significant premium was on offer.
"Xstrata might argue that this is a merger of equals and therefore they won't pay a premium. But if they won't pay a premium, they are not going to get anywhere," said one top 20 investor in Anglo who declined to be named on Monday. The shareholder was also ranked as a top 10 Xstrata investor.
"One can assume that if there were to be any discussions with the Anglo board, it would have to be at a sensible level.
"Takeovers are typically at a premium of 30 percent plus. You would be looking for reasons why it should not be 30 percent - in this case, I don't see any," he said.
On Sunday, Xstrata said it wanted to start talks with Anglo American about a proposed "merger of equals." The combined group would have a market value of about $68 billion based on Friday's closing prices.
Another top 25 investor in Anglo-American, who also wanted to remain anonymous, agreed that Xstrata will have to come up with a different proposal for its rival.
"This proposal is highly unlikely to fly in its current form and I very much doubt if this is Xstrata's final offer. It is an opening gambit," he said on Monday.
The top 20 investor said that unless Xstrata offered a premium over Anglo's market price, shareholders would make a case for it remaining independent.
"There is expectation that the performance of Anglo is improving and if that is the case ... you would want to retain that upside for your own shareholders," he said.
However, the top 25 investor felt it was unlikely that an independent Anglo would be the final outcome.
"This is an opportunistic proposal on Xstrata's part because they have chosen a good moment as a lot of investors are underwhelmed by Anglo's management and their inability to realize the value within the company.
"Therefore whether it is this particular merger proposal or alternatives such as asset disposals, it has set the hare running. The status quo for Anglo is unlikely to be final outcome," he said.
(Reporting by Raji Menon; Editing by Dan Lalor)