EU antitrust regulators have cleared commodity trader Glencore International PLC’s $32-billion (U.S.) takeover of Xstrata PLC, virtually sealing the deal to create a mining and trading powerhouse without requiring asset sales, sources said.
Sources familiar with the matter said Glencore had satisfied the concerns of the European Commission – focused on the supply of zinc metal, particularly in northern Europe – by agreeing to end a zinc sales deal with Belgian producer Nyrstar.
Glencore, however, avoided more substantial concessions, which could have included the sale of assets like Xstrata’s Nordenham zinc plant in Germany or, as some analysts had feared, the miner’s San Juan de Nieva refinery, the largest of its kind in the world.
Analysts fretted such forced sales could have “leaked” value as Glencore scrambled to secure the merger.
A decision is due be announced officially on Thursday.
Glencore now requires only clearance from China’s Ministry of Commerce and a final approval from competition authorities in South Africa, before the deal can complete.
News of the EU clearance comes less than 24 hours after Glencore and Xstrata shareholders gave their own green light for the deal, one of the largest in the mining sector to date.
Last week, Glencore offered up Nordenham, which produced 148,000 tonnes of zinc last year, in an effort to satisfy Brussels and avoid a lengthy “phase 2” investigation which could delay completion of the takeover by as much as six months.
Later discussions, though, meant the disposal was avoided, the sources said on Wednesday, as Glencore agreed to relinquish control over some 5 per cent of global refined zinc supply and provided guarantees on zinc supply.
“No assets will be sold,” one of the sources said.
Europe’s competition worries and those of influential steelmakers’ association Eurofer, as it examined one of the sector’s largest tie-ups, had not centred on the many other commodities Glencore trades and Xstrata mines, but specifically zinc, used in metal alloys and to prevent corrosion.
A combined Glencore Xstrata would control 50 per cent of the European zinc metal market.
Without the Nyrstar agreement, analysts at Jefferies estimated earlier this month that the level drops to 34 per cent.
Glencore owns just under 8 per cent of top producer Nyrstar, and the deal to market some $700-million of zinc a year was extended only last year to 2018.
Nyrstar could seek compensation for the break as it now tries to find a new partner or rebuild its own sales and marketing function.
Candidates to take over the offtake include rival traders Trafigura and Traxys, trade sources have said.
It is also unclear whether Glencore will retain its stake in Nyrstar, though the minority share is not considered to impact market competition.
Glencore, Xstrata and Nyrstar declined to comment. The European Commission spokesman for competition policy, Antoine Colombani, could not immediately be reached for comment.