Glencore Wins EU Approval for $33 Billion Xstrata Deal

Glencore Chief Executive Officer Ivan Glasenberg
Glencore Chief Executive Officer Ivan Glasenberg is creating the world’s fourth-largest mining company by adding Xstrata’s coal, nickel, zinc and copper operations to his cotton-to-crude-oil commodities empire. Photographer: Simon Dawson/Bloomberg

Glencore International Plc won European Union approval for its $33 billion takeover of Xstrata Plc after offering to end a zinc-purchase agreement with Nyrstar NV and to sell its stake in the largest producer of the metal.

Glencore’s offer to scrap an accord to sell Nyrstar’s zinc output in Europe and divest its stake of about 7.8 percent eliminated EU antitrust concerns that the combination with Xstrata would have been able to raise prices for zinc metal, the European Commission said in an e-mailed statement today. It will avoid buying Nyrstar’s European zinc for 10 years.

Glencore, which gained shareholder backing for its Xstrata offer on Nov. 20, previously had an agreement to sell all of Balen, Belgium-based Nyrstar’s so-called commodity-grade zinc. Nyrstar produced about 1.1 million metric tons of the metal last year. Zinc accounted for 18 percent of Glencore’s 2011 operating profit, and 10 percent at Zug, Switzerland-based Xstrata.

“The proposed remedy ensures that competition in European zinc metal market is preserved, so that European customers such as steel galvanizers and carmakers can continue to produce valuable consumer goods at low prices and good quality,” EU Competition Commissioner Joaquin Almunia said in the statement.

European steelmakers lobby group Eurofer criticized the ruling, saying the remedies aren’t sufficient to protect the region’s market from the dominant influence of one supplier, it said in a statement.

‘Dangerously Close’

Terminating the offtake agreement with Nyrstar “may not have the desired effects,” said Gordon Moffat, Eurofer director general. “Post-merger, the parties still will have a share of around 35 percent of the European market, a level of concentration that is dangerously close to the 40 percent threshold set by the Commission.”

Nyrstar dropped 3 percent to close at 4.01 euros in Brussels after the EU announcement. The zinc producer said a settlement needs to be negotiated with Glencore to terminate or change their sales agreement.

“With respect to the divestiture of Glencore’s minority shareholding in Nyrstar, Nyrstar will seek with Glencore to ensure that this is conducted in a considered manner,” it said in an e-mailed statement. “Negotiations with Glencore have commenced in an effort to reach agreement on mutually acceptable terms.”

Glencore advanced 2 percent to 340.7 pence by the close of trading in London. Xstrata gained 1.7 percent to 1,014 pence. The ratio of Xstrata’s stock to those of Glencore was at 2.98 times, near the closest it has been to Glencore’s 3.05-share offer price, as investors bet that the deal will get done.

South Africa

Glencore said in a statement acknowledging the EU approval that it was still waiting for authorizations from Chinese and South African regulators before it could close the transaction.

“Uncertainty about how the Chinese antitrust approval process works adds a little bit of concern and delay,” Paul Gait, an analyst at Sanford C. Bernstein & Co. in London, said by phone. “But, as Glencore and Xstrata don’t operate any assets under the Chinese jurisdiction, the merger won’t increase consolidation in the Chinese market and there shouldn’t be any major issues in obtaining approval. South African approval should be fairly straightforward at this stage.”

Glencore Chief Executive Officer Ivan Glasenberg is creating the world’s fourth-largest mining company by adding Xstrata’s coal, nickel, zinc and copper operations to his cotton-to-crude-oil commodities empire.

Xstrata Zinc

Glencore will gain through the takeover the right to sell all of Xstrata’s production of zinc, used in the coating of iron or steel to protect the metals against corrosion, compared with a third now.

“We are somewhat surprised by the leniency of the EC,” Christopher LaFemina, an analyst at Jefferies, said in a report. “But not at all surprised that this transaction has ultimately been approved by Brussels.”

Glencore, Xstrata, Nyrstar and Boliden AB are the only four companies producing zinc metal in Europe. Glencore Xstrata Plc, the combined company, would have about 11 percent of global zinc output of some 13 million tons.

Glencore Xstrata will also have interests in about 35 coal mines in Colombia, Africa and Australia, and account for about 10 percent of global seaborne exports of the fuel.

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