LONDON Trader Glencore (GLEN.L) has formally notified the European Commission of its $33 billion plan to take over miner Xstrata XTA.L, sources familiar with the matter said, after months of preliminary talks designed to pave the way for a swift approval.
Once the notification has been acknowledged by the commission, the European antitrust regulator has 25 days to decide whether to approve, reject or begin an in-depth probe into a plan to create the world's fourth largest miner.
The sources, which said official news of the notification could be made public on Wednesday, did not specify whether any "remedial" sales, or concessions, were being offered by the two sides to appease the European Union's competition regulator.
Analysts, though, have pointed to potential disposals of assets, particularly in zinc, used in manufacturing and to prevent corrosion, and which is likely to be an area of focus for the European regulator. There could also be reviews of marketing agreements for the metal, some said.
After lengthy "pre-notification" negotiations in advance of Tuesday's official filing, Glencore and Xstrata are widely seen to be targeting a green light from Brussels without a probe extending longer than the first 25 days.
The European Union is not the final regulatory hurdle for Glencore and Xstrata to clear, but the EU process has been keenly watched, as the regulator is expected to set the tone. Beyond Brussels, the two still need get a nod from China's Ministry of Commerce (MOFCOM), the newest and least predictable global regulator.
Glencore, the world's largest diversified commodities trader, made its bid for Xstrata in February. It announced weeks later that it would notify the EU Commission, despite a long-standing 34-percent stake in the miner. Few, though, had expected the commission to pass on the opportunity to lift the lid on one of the largest takeover deals in the mining sector.
The notification, which sets the EU regulatory clock ticking, had initially been expected as far back as April, but has been delayed by drawn-out talks, by uncertainty over the deal itself after opposition from Xstrata's second-largest shareholder Qatar, and by the European summer break.
ZINC IN FOCUS
Glencore and Xstrata combined become the world's largest thermal coal exporter, and the largest producer of both zinc and ferrochrome. But the picture is complex -- in thermal coal, Glencore and Xstrata's export capacity is the largest, but less than 10 percent of the global total, well below the threshold deemed significant by most antitrust authorities.
In zinc however, analysts estimate the combined group could have 50 percent of the European market for zinc metal - a concern given European authorities' particularly narrow definition of the market at the time of Xstrata's acquisition of miner Falconbridge in 2006.
"It's fair to say of the markets they're involved in, zinc would be the one that invites the most scrutiny," said Duncan Hobbs, a base metals analyst at Macquarie.
Zinc, therefore, could be an area of likely concessions, with many analysts and traders pointing to Xstrata's San Juan de Nieva refinery in Spain, the largest zinc production unit in the world, thanks to its high-grade zinc, alloys, silver/lead concentrates, sulphuric acid and copper cements.
Alternatively, Glencore could be forced to review its offtake deal with Belgium's Nyrstar (NYR.BR), the world's largest producer of zinc, which includes zinc and lead. The deal was extended last year and is due to expire in 2018.
"If they have to sell assets there is certainly not a long list of buyers. My concern would be that any remedies could be value-leaking - but at the end of the day this is relatively small," analyst Chris LaFemina at Jefferies said.
"Most of the value in zinc in Xstrata is in the mines. I don't expect major antitrust hurdles here - certainly there is nothing insurmountable in my view."
Several major zinc merchants have said in recent days they had been approached by the commission to discuss the impact of the merger on zinc supply, while one said U.S. officials had also asked questions.
In Europe, meanwhile, the region's influential steelmakers' association, Eurofer, said it was awaiting details of the notification to decide whether to request a further probe.
"They (Glencore and Xstrata) are active in many markets, but only in zinc does their combined market share, particularly their very strong presence in Europe, raise concerns as far as competition is concerned," a Eurofer official said.
Xstrata and Glencore declined to comment.