EC approves Glencore-Xstrata deal, subject to conditions
London (Platts)--22Nov2012/746 am EST/1246 GMT
The European Commission has cleared under EU merger regulations the
proposed merger of Xstrata, the world's fifth-largest metals and mining
group, and Glencore, the world's leading metals and thermal coal trader, the
EC said Thursday.
The clearance is conditional on the termination of Glencore's offtake
arrangements for zinc metal in the European Economic Area with Nyrstar, the
world's largest zinc metal producer, and the divestiture of Glencore's
minority shareholding in Nyrstar, which currently stands at around 7.79%.
The EC said it had "concerns that the merged entity would have the
ability and incentive to raise prices for zinc metal, an important input for
many EU industries," adding: "The commitments address these concerns."
The proposed remedy "ensures that competition in the European zinc metal
market is preserved, so that European customers such as steel galvanizers and
car makers can continue to produce valuable consumer goods at low prices and
good quality," said the EC vice president in charge of competition policy,
Joaquin Almunia, in a statement.
Article continues below...
|Request a free trial of Metals Daily|
Platts Metals Daily offers prices, news and analysis for the aluminum, copper and molybdenum value chains. It contains hundreds of metals prices across base, minor, light and precious metals assessed by editors globally. This detailed report will help you monitor global events and quickly spot opportunities or potential pitfalls as well as bring you aluminum and copper price and news coverage. Daily prices and news for molybdenum are also covered to deliver critical insights.
Currently, Glencore is the largest supplier of zinc metal in the EEA on
the basis of an exclusive offtake agreement with Nyrstar, an offtake relation
for some of Xstrata's EEA output, production from Glencore's own smelter in
Italy and imports, the EC noted.
Glencore and Nyrstar signed an offtake deal in November 2008, under
which Glencore purchases commodity-grade zinc and lead metal produced by
Nyrstar, whilst Nyrstar focuses on developing its sales within the
higher-margin value-added zinc and lead alloys markets. Last year the two
companies extended the agreement until 2018.
Nyrstar's smelters produced 803,000 mt of zinc metal in the first nine
months of 2012, and are expected to produce around 1.1 million mt for the
Glencore also controls warehousing group Pacorini, which owns a number
of London Metal Exchange-approved warehouses notably in New Orleans, where a
large amount of zinc metal is stored, and a large amount of exports and
storage of EEA-produced zinc metal, the EC noted.
Xstrata is the second-largest producer of zinc metal in the EEA, owning
the large San Juan de Nieva smelter in Spain and the smaller Nordenham plant
in Germany. "Together Glencore and Xstrata are the world's largest supplier
of upstream zinc concentrate," the EC said.
"Following the merger the merged entity would have even more than today
the ability and incentive to control the level of zinc metal supplies in the
EEA, for example by exporting material to LME-certified warehouses outside
the EEA or otherwise withholding supplies from the EEA market," the EC added.
"Reaction from competitors, including imports, would not be sufficient to
prevent the risk of a significant price increase for zinc metal."
In order to remove these concerns, the EC said, Glencore committed: to
terminate its exclusive long-term offtake agreement with Nyrstar in so far as
the agreement relates to commodity zinc products produced by Nyrstar in the
EEA; not to buy directly or indirectly any EEA zinc metal quantities from
Nyrstar for a period of 10 years; not to engage, for 10 years, "in any other
practices which have the effect of materially restricting Nyrstar's ability
or incentive to compete effectively with Glencore in zinc metal in the EEA;"
and to divest Glencore's minority shareholding in Nyrstar of around.
The EC concluded that the transaction, as modified by the commitments,
would not raise competition concerns anymore, though it added that this
decision is conditional upon the full implementation of the commitments.
The EC said its investigation found that the proposed transaction was
unlikely to raise competition concerns as regards the production or supply of
zinc concentrate, thermal coal and coking coal, copper and copper
concentrate, lead and lead concentrate, nickel and nickel intermediates,
cobalt and cobalt intermediates, ferrochrome and other "non-core" products
(gold, molybdenum, platinum, palladium, sulfuric acid, vanadium,
ferrovanadium, and silver).
Shareholders of Xstrata and Glencore voted Tuesday in favor of the $31
billion combination of the two Switzerland-based commodities heavyweights,
but Xstrata shareholders rejected a controversial retention bonus plan for
the company's senior management.
--Andy Blamey, firstname.lastname@example.org
--Edited by Maurice Geller, email@example.com