Bloomberg News

Glencore Will Notify EU of Xstrata Bid for Merger Review

February 24, 2012

Glencore International Plc (GLEN), the commodities trader seeking to buy Xstrata Plc (XTA) for $37 billion, will formally notify the European Commission of the proposed deal for assessment under regional merger regulations.

The takeover isn’t expected to “result in any negative impact on competition in the commodity markets in which the two companies operate,” Baar, Switzerland-based Glencore, which already owns 34 percent of Xstrata, said today in a statement. The move to notify the commission under European Union merger rules came after a “constructive consultation,” it said.

European steel lobby group Eurofer last week said it was concerned that the takeover would harm competition in the zinc, nickel and coal markets. The combined Glencore and Xstrata would be the world’s third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of thermal coal.

“Whilst the combination gives the merged entity dominant global positions in mined supply, our initial take is no commodity concentration should raise a red flag,” said Ash Lazenby and Dominic O’Kane, analysts at Liberum Capital Ltd.

Glencore ended more than three decades as a closely held company last year in an initial public offering of $10 billion of stock. Xstrata listed on the London Stock Exchange in 2002 after buying Glencore coal assets in Australia and South Africa.

Material Competition

UBS AG analysts said Feb. 3 they don’t expect “material competition issues.” Xstrata Chief Executive Officer Mick Davis says he expects the deal to be completed in the third quarter.

“Given competition authorities have yet to prevent Glencore from having such market share, and a significant proportion of Xstrata’s volumes are likely to be already contained within Glencore’s market share calculation at IPO, we see no reason as yet to suggest a block,” Liberum said today.

Eurofer plans to gather data before deciding whether to file an antitrust complaint with the EC on the “competition implications of the merger,” said Axel Eggert, public affairs director for the lobby in Brussels, in a Feb. 17 e-mail.

“It’s always been understood that a $40 billion dollar deal would require clearance by, and attract the scrutiny of, a number of antitrust authorities worldwide, probably in the U.S., EU, South Africa, China and Australia,” said Suzanne Rab, a partner in the antitrust practice at law firm King & Spalding in London.

Treated as One

The combined company would control about 11 percent of the export energy coal market, 8.5 percent of mined copper and 9.5 percent of refined nickel, UBS AG said. It would also hold about 12 percent of mined zinc and 7.6 percent of mined lead, it said.

“Clearly the market shares are high but we don’t have any concerns,” Davis said Feb. 7. “In the past, the European Union has always treated Xstrata and Glencore as one unit. I take that as a precedent, and I don’t think that any of the volume in itself actually causes a problem in different jurisdictions.”

The commission has deemed in the past that Glencore has control over Xstrata for merger control assessment, King & Spalding’s Rab said in a telephone interview today.

“It will, however, want to consider whether Glencore has sole or joint control and how the current transaction changes this, if at all,” she said. “Moving from a situation of joint to sole control would be a situation requiring EU merger control approval.”

Glencore (GLEN) declined by 0.4 percent to 436.3 pence by 2:37 p.m. in London trading. Zug, Switzerland-based Xstrata dropped by 0.2 percent to 1,212 pence.

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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