By Alex MacDonald and Vanessa Mock
LONDON--The European Commission is concerned that the proposed
merger between Glencore International PLC (GLEN.LN) and Xstrata PLC
(XTA.LN) could reduce competition in the European refined zinc
metal market and has requested that Glencore provide remedies by
midnight Tuesday if it wishes to keep to its timetable, three
people familiar with the matter said Tuesday.
Glencore and Xstrata are seeking regulatory and shareholder
approval for a proposed all-share tie-up that would create the
world's fourth-largest diversified miner with a market
capitalization of about $70 billion. From a regulatory perspective,
only the European Commission and China's Ministry of Commerce still
have to render a verdict. Glencore and Xstrata have previously said
they expected the deal to close by the end of the year.
The two regulators are trying to assess whether the combination
of the two companies would lead to the concentration of power in
the hands of a few players who could potentially set the price for
certain commodities.
An EU official familiar with the negotiations confirmed that the
European Commission, the body responsible for reviewing EU
competition issues, identified concerns related to the combined
company's market share in zinc metal.
The person wasn't able to say whether Glencore had submitted any
concessions as yet but said: "We fully expect them to submit
remedies by the close of Tuesday."
The person added that the regulator would extend its review
deadline from Nov. 8 to Nov. 22 in order to give itself more time
to assess whether any concessions from the companies go far enough
in addressing its concerns. Two people familiar with the matter
said the extension would be in keeping with normal protocol.
Glencore and Xstrata have argued to EU regulators that the zinc
metal market is global and the deal should be reviewed within that
context. The European Commission previously ruled in Xstrata's 2006
Falconbridge purchase that the zinc market was regional.
Glencore and Xstrata would have a combined market share of about
50% in European zinc metal, according to Macquarie Research
calculations. This compares to a 9.1% market share in the global
zinc metal market, according to UBS calculations.
Xstrata owns the San Juan de Nieva zinc refinery in Spain, which
is able to produce 511,000 metric tons of zinc metal a year, making
it the largest in the world, according to the company. It also owns
the Nordenham zinc smelter in northern Germany, which is able to
produce 150,000 tons of refined zinc a year.
Glencore owns the Portovesme primary lead and zinc smelter in
Sardinia, Italy, which is able to produce 120,000 tons of zinc
metal a year. Glencore also markets a significant amount of zinc
produced by Belgium-based Nyrstar N.V. (NYR.BT) and owns a minority
stake in the company.
"Cancelling the Nyrstar contract is on the light end of the
concessions that Glencore might offer," said mining analyst Jeff
Largey of Macquarie Research. "Selling the San Juan de Nieva zinc
refinery is on the heavy end of that spectrum."
Glencore declined to comment on the matter.
-Write to Alex MacDonald at alex.macdonald@dowjones.com and
Vanessa Mock at vanessa.mock@dowjones.com
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