Glencore’s deal with Xstrata faces long road to clearance
GLENCORE and Xstrata’s $90bn (£57bn) merger faces a long road to reach regulatory and competition clearance.
While bigger commodities tie-ins have been cleared in the past – such as the deals that formed Rio Tinto and BHP Billiton – merging a clearing house with a miner could encounter new hurdles, analysts said yesterday after the blockbuster deal was officially unveiled.
“Many governments may take the opportunity to review Glenstrata’s influence on their food and industrial and energy imports and exports so … it might be forced to relinquish some of its other roles” said Neil Dwane, chief investment officer of RCM, a unit of Allianz Global Investors, an Xstrata shareholder.
The enlarged group would be the world’s number three for copper output, number one in zinc and lead, number six in coal and number five in nickel, according to analysts at Numis. And Glencore already accounts for 28 per cent of global traded volumes in thermal coal, while it makes up 50 per cent of the market in copper and 60 per cent of zinc trading.
Soaring prices of these commodities may have boosted Xstrata’s bottom line (see above left) but price volatility in the past year has drawn focus towards the dominance of the biggest players in the market.
Xstrata chief executive Mick Davis said he expected the deal to be cleared in Europe with few problems, as the two firms have been treated as a singular entity since 2006, when Xstrata took over Falconbridge.
“But this is a tricky situation; there are some overlaps, so the regulator may decide to take a fresh look,” one antitrust lawyer added.
China, the firm’s biggest market, and South Africa in particular could snarl the deal in red tape and competition hearings, analysts have said.
Chinese authorities gave mixed signals about the mega-merger yesterday, with industry group China Nonferrous Metals Industry Association welcoming the deal but others voicing concerns over competition.
And in South Africa, analysts at Credit Suisse and elsewhere expect the merged firm to eventually make another takeover approach for fellow miner Anglo American.
But even if the firm eschews a risky bid for Anglo, following Xstrata’s failed offer in 2009, some market watchers including Numis predict regulatory trouble regardless.
Moody’s, on the other hand, seemed upbeat about the deal: it placed both Glencore and Xstrata on review for a credit rating upgrade yesterday.