Glencore Offers Concessions in EU Review of Xstrata Takeover

Glencore Offers Concessions in EU Review of Xstrata Deal
A sign directs visitors and goods vehicles at the headquarters of Glencore International Plc in Baar. Photographer: Gianluca Colla/Bloomberg

Glencore International Plc offered unspecified concessions to European Union antitrust regulators examining its $33 billion takeover bid for Xstrata Plc, which would create the world’s fourth-biggest mining company.

The European Commission reported the proposed commitments today and extended until Nov. 22 a deadline to rule on the deal, it said in a website filing that gave no details of the remedies Glencore offered. An official from Baar, Switzerland-based Glencore official declined to comment.

The combined company would be the world’s third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of coal burned by power stations. The dominance is largest in zinc, where the group would control about 64 percent of traded volumes globally and 75 percent in Europe, Bloomberg calculations show.

Glencore offered to exit its marketing agreement with Nyrstar NV, the largest zinc smelter, Reuters reported, citing an unidentified person. Glencore owns a 7.8 percent stake in Nyrstar and has an agreement to sell all of its “commodity grade” zinc and lead metal output, according to the Balen, Belgium-based company. Nyrstar produced about 1.1 million tons of zinc last year.

“That concession would be very small in value compared to the $500 million synergy Glencore estimates it would achieve from marketing all of Xstrata’s commodities production,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said today. “I believe the commission would be looking to reduce Glencore’s dominance to below 50 percent to stop a single player from being in a majority position.”

Ivan Glasenberg

Glencore sells 2.7 million tons of zinc annually, 60 percent of the global traded volume, the company said in its 2011 prospectus. Glencore markets about a third of Xstrata’s 1 million tons in annual zinc output.

Chief Executive Officer Ivan Glasenberg increased Glencore’s offer to 3.05 of its shares for each one in Xstrata from 2.8 shares on Sept. 7 after investors including 12 percent shareholder Qatar Holding LLC called for a higher bid. Glencore already owns 34 percent of Xstrata.

Glencore declined 0.3 percent to 343.05 pence at the close in London, while Xstrata fell 0.3 percent to 979.10 pence. Nyrstar slumped 3.9 percent to 4.19 euros in Brussels. A Nyrstar official declined to comment on the Reuters’ report.

Glencore said in February that the decision to seek EU authorization for the deal followed “constructive consultation” with regulators. Xstrata CEO Mick Davis has said he doesn’t have “any concerns” because the EU “has always treated Xstrata and Glencore as one unit.”

Avoid Delay

Glencore on Oct. 2 submitted its proposal to acquire the rest of Xstrata for antitrust approval from the commission, the EU’s executive agency, and had until yesterday to offer remedies to avoid the process extending into a second phase, which would delay a decision by a further 90 working days.

Glencore-Xstrata would have about 11 percent of global zinc output of some 13 million metric tons, and some 40 percent of the 1.9 million tons produced in Europe.

Zinc accounted for 18 percent of Glencore’s 2011 operating profit, and 10 percent at Zug, Switzerland-based Xstrata. Glencore will gain through the takeover the right to sell all of Xstrata’s production of zinc, used to harden steel for construction and automobiles, compared with a third now.

Glencore, Xstrata, Nyrstar and Boliden AB are the only four companies producing zinc metal in Europe. Boliden’s output of 460,000 tons will be the only European production Glencore won’t be marketing after the takeover.

At the end of the first phase of the examination, now due by Nov. 22, the commission could approve the deal, allow it with conditions potentially involving an asset sale, or refer the case to a second phase. Glencore’s offer would lapse if the commission refers the investigation to a second phase prior to Xstrata’s court meeting to vote on the offer on Nov. 20, according to the current terms of the deal.

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