Glenstrata and the meaning of "merger" They are like UFOs aren't they? A lot of people believe in them but they don't really exist. My wiser colleague does not believe there are such things as mergers. When, some months ago, during the first act of the Glenstrata drama, I told a dealmaker that I might start calling the approach by Swiss commodity trader Glencore for miner Xstrata a "takeover," he despaired, suggesting that such ignorance of corporate finance would destroy the City of London. While very likely an overreaction, it was a warning of how important semantics is in dealmaking - and probably explains why it took a politician of the experience of Tony Blair to mediate in last week's negotiations between Glencore and investors. As Xstrata spends the coming days trying to finalise a deal with Glencore, a debate about whether this deal is truly a merger is still relevant. The questions are how much the trader should have to pay and whether shareholders will accept its offer. On Friday, Glencore's chief executive Ivan Glasenberg made clear his desire to control the combined businesses by going back on an original plan to leave the top three jobs with Xstrata management. In exchange for an increase in the value of his offer, he asked for the chief executive role and the right to convert the deal into a takeover offer - which has a lower threshold of approval. Since then, however, the speed-walking trader has compromised. Given the frosty response from his target, and an inability to take an offer direct to shareholders, Mr Glasenberg moved back to a structure that appears closer to that of a merger. But is it? Legally, in the UK, the word itself has no meaning: in M&A, it is always one company acquiring another. So the financial world has come up with its own yardsticks to define mergers. Companies should be of roughly the same size, with each getting around equal stakes in the emerging company - between 40 to 60 per cent is generally acceptable. They are all-share deals, so investors in the target company have an interest in the combined entity. A cash offer, by contrast, takes out the target shareholders, which is more in line with the spirit of a takeover. Also, no substantial premium is paid to the target's shareholders and control of the board is evenly shared. The idea is that all these elements are fairly balanced, as a completely perfect split is unlikely to be achieved. So does Glenstrata fit this bill? One complicating factor here is that Glencore already owns 34 per cent of Xstrata. Glencore's market cap is the smaller of the two, especially when you consider the market value of its stake in the miner. Yet through this "merger," on the basis of 3.05 Glencore shares for each share in Xstrata, the trader will get 53 per cent of the combined company. Moreover, Xstrata's assets will be contributing more than 70 per cent of Glenstrata's earnings (before interest tax depreciation and amortisation), based on 2011 numbers. But the independent shareholders in the miner only own 66 per cent of that. On the flip side, when the deal was announced in February, Glencore's contribution to the combined entity (including the share from its Xstrata stake), on a net income basis, was expected to grow from 57 to nearly 59 per cent by 2014. To provide balance, Xstrata was to be given control of the board, through the top three positions. Now, after six months, Mr Glasenberg will be chief executive, but Xstrata's chairman will remain. It is unclear who will take the board seat of Xstrata chief Mick Davis; to fit the bill, it would have to be someone from Xstrata. So it looks a fairly balanced split. However, the other question is whether it even matters. Some shareholders" key gripe was that this was a takeover in all but name - so they wanted a bid premium high enough to reflect that. Typically, in a merger, they would not get one. But if they felt that Glencore was getting too much out of the deal, the trader seems to have made up for it. With its new offer representing a 22 per cent premium to Thursday's closing share price - but a 39 per cent premium to the level some analysts believe the two stocks will fall to if the deal breaks - that is well into takeover premium territory. A tell-tale sign of a takeover dressed up as a merger is the usurping of the target's management. Today, that is not the case - the aim is to retain key mining talent at Xstrata. Investors are also better off in other ways. Some dealmakers say the hallmarks of successful mergers are an unassailable industrial logic, not overpaying, strong governance and undiluted leadership. Key shareholders bought into the first point. Now, they also have the latter. Anousha Sakoui is the FT's M&A correspondent