Europe’s antitrust regulator has outlined more modest than expected conditions for trader Glencore International PLC to press ahead with its $33-billion takeover of Xstrata PLC.
The European Commission (EC) cleared the world’s largest diversified commodities trader to complete the deal but said on Thursday it must scrap an exclusive European zinc sales agreement with producer Nyrstar.
In the months during which Brussels examined Glencore’s tie-up with Xstrata, the EU’s worries – and those of influential steelmakers’ association Eurofer – had centred on zinc. Used in metal alloys and to prevent corrosion, it is a metal where Glencore and Xstrata would be particularly strong as a combined entity.
The Nyrstar move will cut the combined entity’s share of the European zinc market from roughly half to below 40 per cent, the threshold which triggers antitrust concerns. The deal between Glencore and Nyrstar accounts for some 350,000 tonnes of European zinc a year, according to trade sources.
Glencore must also sell its 7.8 per cent stake in Nyrstar, worth roughly $70-million at current prices, in order to proceed with its ambition of creating a mining and trading giant.
As indicated by sources familiar with the matter on Wednesday, though, no asset sales are required.
“We are somewhat surprised by the leniency of the EC, but not at all surprised that this transaction has ultimately been approved by Brussels,” Jefferies analysts said in a note. “Today’s EU approval brings this proposed merger one step closer to completion.”
Glencore had been expected to be forced to sell an asset, such as Xstrata’s Nordenham zinc smelter in Germany or even its San Juan de Nieva plant in Spain, the world’s largest. It had offered up the German smelter after the Commission said the original Nyrstar proposal was not sufficient, sources familiar with the matter said last week.
“The proposed remedy ensures that competition in the European zinc metal market is preserved, so that European customers such as steel galvanisers and carmakers can continue to produce valuable consumer goods at low prices and good quality,” EU Competition Commissioner Joaquin Almunia said.
The EU antitrust authority said Glencore also pledged not to buy zinc, either directly or indirectly, from Nyrstar for 10 years, and agreed not to take any action to restrict Nyrstar’s ability to compete with it in Europe during that period.
Nyrstar, which will have to seek a new sales partner or rebuild a sales and marketing function, said it was already in talks with Glencore to seek a deal to end their contract, which was extended to 2018 only last year.
Candidates to take over the offtake include rival traders Trafigura and Traxys, trade sources have said.
Glencore must now clear antitrust hurdles in China and secure a final approval from South African authorities.
Investors gave their backing to the deal earlier this week.