Brussels, 22 November 2012
Mergers: Commission approves Glencore's acquisition of Xstrata, subject to conditions
The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Xstrata, the world's fifth largest metals and mining group, by Glencore, the world's leading metals and thermal coal trader. The clearance is conditional on the termination of Glencore's off-take arrangements for zinc metal in the European Economic Area (EEA) with Nyrstar, the world's largest zinc metal producer, and the divestiture of Glencore's minority shareholding in Nyrstar. The Commission had concerns that the merged entity would have the ability and incentive to raise prices for zinc metal, an important input for many EU industries. The commitments address these concerns.
Commission Vice President in charge of competition policy Joaquín Almunia stated: "The merger will bring together two major global players in key commodities. The proposed remedy ensures that competition in the European zinc metal market is preserved, so that European customers such as steel galvanisers and car makers can continue to produce valuable consumer goods at low prices and good quality".
The Commission's preliminary investigation found that the proposed merger, as initially notified, would have raised competition concerns for the supply of zinc metal in Europe, as the transaction risked to significantly strengthen Glencore's already strong position in the EEA.
Currently, Glencore is the largest supplier of zinc metal in the EEA on the basis of an exclusive off-take agreement with Nyrstar, an off-take relation for some of Xstrata's EEA output, production from Glencore's own smelter in Italy and imports. Glencore also controls (i) Pacorini, an owner of London Metal Exchange (LME) approved warehouses notably in New Orleans, where a large amount of zinc metal is stored, and (ii) a large amount of exports and storage of EEA produced zinc metal. Xstrata is the second largest producer of zinc metal in the EEA, owning a large smelter in Spain and a smaller smelter in Germany. Together Glencore and Xstrata are the world's largest supplier of upstream zinc concentrate.
Following the merger the merged entity would have even more than today the ability and incentive to control the level of zinc metal supplies in the EEA, for example by exporting material to LME-certified warehouses outside the EEA or otherwise withholding supplies from the EEA market. Reaction from competitors, including imports, would not be sufficient to prevent the risk of a significant price increase for zinc metal.
In order to remove these concerns Glencore committed (a) to terminate its exclusive long-term off-take agreement with Nyrstar, the largest European zinc metal producer, in so far as the agreement relates to commodity zinc products produced by Nyrstar in the EEA, (b) not to buy directly or indirectly any EEA zinc metal quantities from Nyrstar for a period of ten years, (c) not to engage, for ten years, in any other practices which have the effect of materially restricting Nyrstar's ability or incentive to compete effectively with Glencore in zinc metal in the EEA, and (d) to divest Glencore's minority shareholding in Nyrstar of around 7.79 %.
The Commission concluded that the transaction, as modified by the commitments, would not raise competition concerns anymore. This decision is conditional upon the full implementation of the commitments.
The Commission's investigation found that the proposed transaction was unlikely to raise competition concerns as regards the production or supply of: zinc concentrate; thermal coal and coking coal; copper and copper concentrate; lead and lead concentrate; nickel and nickel intermediates; cobalt and cobalt intermediates; ferrochrome; and other "non-core" products (gold, molybdenum, platinum, palladium, sulphuric acid, vanadium, ferrovanadium, and silver).
The transaction was notified to the Commission on 2 October 2012, after a pre-notification phase that lasted several months. Throughout its investigation the Commission has cooperated closely with other competition authorities.
When assessing its jurisdiction to review the proposed transaction the Commission found that, despite its minority shareholding of 34% and certain contractual relations between the two companies, pre-merger Glencore does not exercise de jure or de facto control over Xstrata.
The substantive assessment of the merger has presented a number of challenging issues: (a) Glencore's trading and production business covers all steps in the commodities value chain i.e. mining, off-take agreements, freight, refining and smelting, metal warehousing, financing services and its hedging and trading activities on commodities exchanges such as the London Metal Exchange ("LME"); (b) the merger brings together an integrated trader/producer (Glencore) with a producer active at the mining and refining level (Xstrata) and has thus vertical and horizontal effects in many different product markets; (c) the existing minority shareholding relationship between the parties.
Companies and products
Glencore produces and trades a wide range of commodities and raw materials. Glencore's business is organised around three segments: (i) metals and minerals – e.g. aluminium, alumina, zinc, copper, lead, ferroalloys, nickel, cobalt, and iron ore; (ii) energy products – e.g. crude oil, oil products, coal and coke; (iii) agricultural products – e.g. wheat, maize, barley, edible oils, oilseeds, cotton and sugar.
Xstrata is a natural resources group, which comprises five major businesses: (i) an alloys business, comprising ferrochrome and vanadium operations and a platinum group metals business; (ii) a coal business; (iii) a copper business; (iv) a nickel business; (v) a zinc-lead business.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
More information on the case is available at: