Shares in Xstrata dropped 4.9% overnight on Tuesday in London and 4.4% in Switzerland, while Glencore shares dropped 3.8% in London but remain suspended in Hong Kong.

It comes as Reuters reported that two of Xstrata’s top ten shareholders have already spoken out against the deal.

Xstrata’s fourth-largest shareholder Standard Life Investments has reportedly vowed to vote against the deal in its current form.

Meanwhile, fund manager Schroders agreed and also said it would vote against the deal.

“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 head of equities Richard Buxton told Reuters.

In a presentation to analysts in London yesterday, Davis defended his negotiation skills after much media commentary on the topic.

“We know that I’m a lousy negotiator but let’s look at it from an Xstrata point of view and see how badly I’ve done,” he said, pointing out that the new entity would be earnings accretive from day one.

There was also pressure on Davis to negotiate a fair premium, but he said he didn’t go into talks to negotiate a premium; he was more focused on minimising dilution.

The result is an offer of 2.8 new Glencore shares for every Xstrata share held, a 15.2% premium to Xstrata’s February 1 closing price.

Xstrata shareholders other than Glencore will hold 45% of the enlarged company, but contribute 65% of the assets.

In a research note, London-based broker Marex Spectron said just 12% of votes could block the merger and it estimates around 3% have already made their discontent public.

“It is possible opposition to accept the Glencore/Xstrata terms will grow as UK institutional militancy has come of age,” Marex wrote.

Marex speculated that the deal could be rejected in its current form, but could still be altered.

“It is worth noting that Glencore has yet to report results which could have an influence on the value of the all share deal, thus making a ‘no increase statement’ unlikely until after the material event (trading results) occurs.”

Credit agency Moody’s took a more positive view of the merger, placing the Baa2 ratings of both companies on review for possible upgrade.

“The initiation of this review reflects Moody's favourable assessment of the planned merger in terms of diversification and synergies, as well as the uncertainties surrounding the final details and execution of the proposed transaction,” Moody’s said.

“If the merger were to go ahead, Moody's expects that a possible upgrade of Glencore's and Xstrata's ratings would likely be limited to one notch.”

One area of assessment that Moody’s will look at is the increased diversification of the new entity, which Davis used as a selling point.

“No other company in the industry has the diversification of product streams that we have,” he said.

Davis also said the company would have greater strategic flexibility to “exploit value propositions”

“We’ll play a decisive role in industry consolidation,” he said.

He said the new company, to be known as Glencore Xstrata International, would be the world’s fourth-largest diversified resources company and the tenth largest company in London’s FTSE 100 index.

Davis said the deal would have a “long gestational period” but after tackling court, regulatory and shareholder approvals, he expected to complete the merger in the third quarter of this year.

Yesterday’s merger announcement overshadowed Xstrata’s preliminary financial results for 2011.

The company delivered an attributable profit of $5.7 billion, up 22% on 2010 on revenue of $33.8 billion, an 11% rise.

This story first appeared on ILN's sister publication MiningNews.net