Glencore and Xstrata are to seek approval from Brussels for their proposed $90-billion (U.S.) merger to create a commodities group, in a move that suggests antitrust clearance could prove a bigger hurdle than initially expected.
Executives at Glencore, the world’s largest commodities trader, and Xstrata, the mining group, had been confident that their deal would not require a formal investigation by the European Commission.
But, after talks with officials at Europe’s top competition regulator, the groups accepted on Friday that they would have to file their case in the coming weeks, triggering a potentially difficult process that could take several months.
The companies will now prepare their submission to the Commission, which could take several weeks to complete. Once the case is officially notified, the Commission has about 25 working days to conduct a preliminary investigation and then either approve the merger or launch a further, in-depth investigation.
“Each of Glencore and Xstrata are familiar with the Commission’s merger control process and together look forward to working with the Commission in a process which avoids the need for multiple filings with national member state authorities,” the companies said in a statement.
“The parties expect the merger between Glencore and Xstrata not to result in any negative impact on competition in the commodity markets in which the two companies operate.”
As Brussels concluded that Glencore already controlled Xstrata for regulatory purposes in 2006 when clearing Xstrata’s takeover of Falconbridge, another mining group, lawyers were confident a case would not need to be filed.
Glencore still owns about 34 per cent of Xstrata and holds two seats on its board. However, in talks with officials in recent days, questions arose over whether Glencore was in effective control of Xstrata throughout the period since 2006 - a factor that would trigger the merger approval process.
Without a filing, Glencore and Xstrata would have been spared scrutiny of their power in various markets. One particular area of interest for antitrust officials may be the zinc market, where the merger will create the world’s largest miner of zinc, the metal’s top trader and one of the biggest zinc smelting companies.
Consumers of zinc, used as a protective coating for steel products from car parts to roofing for buildings, have called for regulators to scrutinize the deal. In Europe the combined group would control more than a third of European zinc smelting capacity.
In a preview of some of the arguments that will be put to the Commission, Xstrata and Glencore said the combined group “is expected to be able to offer customers a wider range of products and services and provide improved security of supply to satisfy customer demand”.