LONDON The merger of
Glencore International Plc and Xstrata Plc is "not a slam
dunk," analysts at New York-based Jefferies Group Inc. said
Thursday, but they nonetheless expect it to go ahead.
The two companies are currently
awaiting a decision from the European Commissions
antitrust body and, crucially, a vote from Xstrata
"We (do) expect the merger to
close, and the merged (company) will be one of our top
long-term picks in the sector," the analysts said.
The approval from the antitrust
body in Europe will require remedies on Glencores part,
including the disposal of certain zinc assets, but the analysts
say that this doesnt necessarily represent a deal
"Glencore and Xstrata will need
to propose either the sale of the San Juan de Nieva smelter in
Spain or an end to the Glencore offtake agreement with Nyrstar
(NV)," they said.
Zug, Switzerland-based Xstrata
might also need to sell its Nordenham zinc smelter in Germany,
and Baar, Switzerland-based Glencore might need to divest its
Portovesme smelter in Italy, according to the analysts.
A proposal that only ends
Glencores offtake agreement with Zurich-based Nyrstar
might not be enough, they said, and there is some risk that the
process could extend into a more exhaustive second-phase
"Either way, we expect the
companies to propose adequate remedies ultimately and antitrust
concerns to be fully addressed. To put it simply, antitrust
issues in zinc will not be a deal breaker, in our view," the
Chinas Ministry of
Commerce must also approve the merger before it can proceed,
and it is expected to follow a process similar to the European
Commissions. But it could wait until after a decision is
made to announce its ruling.
The analysts also said that they
expect the Xstrata shareholder vote for the amended
remuneration package as well as the vote for the merger to
The Competition Commission of
South Africa has already recommended that the countrys
competition tribunal approve the deal, subject to certain
conditions on employment.
"We are somewhat concerned about
shareholder turnout. We strongly encourage those shareholders
who support the deal to vote. If antitrust concerns are
addressed and Xstratas shareholder votes are passed, as
we expect, the deal should cross the finish line," the analysts
"We consider the investment case
for the merged Glencore-Xstrata to be compelling from a
long-term perspective," the analysts added.
A version of this article was first published by AMM
sister publication Metal Bulletin.