On 16 April 2013, China’s Ministry of Commerce (“MOFCOM”) posted the No. 20 Notice of 2013 on its website, finally giving green light to the Glencore/Xstrata deal, which is the largest merger in mining history.
The approval of review process has been waited for more than one year. The MOFCOM issued the approval with certain restrictive conditions on the deal in the end, following merger review agencies of other relevant jurisdictions, such as EU, South Africa and Australia.
According to the Notice, Glencore and Xstrata have horizontal overlaps and vertical relations in several relevant markets. In the comprehensive competition analysis, the competition concerns of MOFCOM’s were mainly focused on three relevant markets, including the copper, zinc and lead concentrate markets.
In the competition analysis of the copper concentrate market, MOFCOM made six assessments as below: the concentration (1) will increase the amount of copper resources controllable by Glencore; (2) will increase the controlling force of Glencore on the copper concentrate market; (3) will strengthen Glencore’s integration of cooper supply chain; (4) may alter the contract term under the existing competitive landscape; (5) will increase the entry barrier of the copper concentrate market; and (6) will weaken the bargaining power of Chinese downstream enterprises, and hence may harm consumer interests in the copper concentrate market.
As for zinc and lead concentrate markets, the MOFCOM holds that the concentration will not only increase the controlling power of Glencore on zinc and lead concentrate markets, but also will strengthen Glencore’s integration of zinc and lead supply chain.
In view of the above-mentioned assessments, MOFCOM and the concentration parties had several rounds of communication upon how to eliminate the MOFCOM’s competition concerns. The final consensus reached by two sides is a clearance with several conditions summarized as following:
(1) Structural Remedies
Ex post the transaction, Glencore shall divest the Las Bambas copper mine in Peru before the date specified by MOFCOM. In case Glencore can’t complete the divestiture before the specified dates, one of alternative copper mines, including the Tampakan, Frieda River, El Pachón and Alumbrera mines will be designated by MOFCOM to be auctioned without reserve.
(2) Behavioral Remedies
Ø Ex post the transaction, Glencore shall supply Chinese customers with the long-term contract offer of not less than the minimum quantity of the copper concentrate form 2013 to 2020. In 2013, the minimum quantity is 900,000 metric tonnes of copper concentrate.
Ø Ex post the transaction, Glencore shall continue to provide Chinese customers with long-term contracts and spot contracts offer of zinc and lead concentrate at fair and reasonable rates, and also keep the offer in line with prevailing international market terms by taking into account the product quality, the number of cross-delivery, payment terms, buyer credit and other relevant factors.
Having waiting for months for the approval from the Chinese agency, as the biggest buyer of Glencore products, Glencore stated that it would complete the takeover by 2 May, 2013, according to relevant sources.
What’s worth noting for enterprises is that, the Glencore / Xstrata took more than one year to obtain the final decision from MOFCOM since the filing was officially accepted. It used to be thought the longest time frame for MOFCOM’ merger review is 180 days, given that the time limit for phase I, II and III is respectively 30 days, 60 days and 90 days. According to the decision made by MOFCOM in this case, however, the parties withdrew the filing near the end of phase III and refiled with MOFCOM shortly.
Interestingly, it is by no means the first time that concentration parties withdraw the filing when it is near to the MOFCOM’s statutory time limit. The Western Digital/ Hitachi case and Marubeni/ Gavilon case have also witnessed the phenomenon of withdrawal and refilling. Nevertheless, at this point it is too soon to tell whether it would become a routine practice in the course of MOFCOM’s merger review.