 |
|
The Xstrata logo is seen on a plaque outside the building that houses the company’s headquarters in Zug, Switzerland. Glencore increased its offer to 3.05 of its shares for each one in Xstrata from 2.8 shares on September 7 after investors including Qatar Holding called for a higher bid |
The European Commission - which is examining the merger, one of the largest in the sector to date - is concerned the deal will hand the group an excessive slice of the northern European zinc market, the person familiar with the matter said.
Analysts estimate a combined Glencore-Xstrata, which would be the world’s largest zinc miner, would have 50% of the European zinc metal market. Ending Glancore’s agreement with Nyrstar would free up 350,000 tonnes, the person said.
The EU competition authorities will decide whether the offer is sufficient to allay regulatory worries or more is required.
The deadline for a verdict is set at November 22, two days after Xstrata shareholders are called to vote on the bid.
One financial source familiar with the deal said Glencore could be asked for more concessions in order to satisfy regulators, with Nyrstar simply the first step.
If so, it would have to weigh the benefits of securing a regulatory green light quickly against seeking to avoid the sale of larger, profitable zinc assets and risking of a lengthier competition investigation that could last up to six months.
A likely additional disposal, if any, would be Xstrata’s Nordenham plant in Germany.
Other assets singled out by analysts include Glencore’s Portovesme lead and zinc smelter in Sardinia, Italy, but this could fail to resolve worries over northern European market share.
Analysts have also speculated Xstrata’s San Juan de Nieva refinery, the largest zinc production plant in the world, could be earmarked, though its size also makes that less likely.
Glencore, which is Nyrstar’s single largest shareholder with a stake of just under 8%, extended its offtake deal with the Belgian company last year until 2018.
The deal, which dates back to 2008, was intended to allow Nyrstar to focus on growing sales within higher margin zinc and lead alloys market, selling commodity grade products at market premiums to Glencore.
Analysts at Macquarie estimated earlier this week that ending the Nyrstar deal would mean Glencore giving up control of some 5% of global refined zinc
But terminating the deal would involve a negotiation with Nyrstar which would have to find a substitute partner or rebuild its sales and marketing function, largely disbanded because of the Glencore offtake agreement.
Glencore, Xstrata and Nyrstar declined to comment.
At current prices, Glencore and Xstrata are trading at an implied merger ratio of almost 2.9, closing in on Glencore’s offer of 3.05 and implying investors do not consider asset disposals a “deal breaker” - or fear a longer probe.
A deeper, “phase 2”, EU probe would mean Glencore’s offer would lapse under UK takeover rules and it might not be allowed to file another bid for six months.
The Commission earlier yesterday extended its review of the deal from an initial deadline of November 8, after Glencore offered concessions, but the regulator did not provide details, in line with standing policy.