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Acquisition MOFCOM cleared Glencore’s acquisition of Xstrata with Conditions

Q1. On April 16, 2013, the Ministry of Commerce (“MOFCOM“) cleared the proposed acquisition of Xstrata plc (“Xstrata“) by Glencore International plc (“Glencore“) with conditions. What kinds of remedy are used in the conditions?

A1. Both structural and behavioral remedies are involved in the conditions.


Q2. What procedures have been gone through for this acquisition?

A2. The parties filed twice for this acquisition, and the case was officially accepted on November 29, 2012 and clearance was obtained half a month into the second round of extended Phase II period.


Q3. What kind of impact will this acquisition bring to the China Market under the consideration of MOFCOM?

A3. Since China is the largest target market for Glencore’s mining products and an important target market for Xstrata’s mining products, and the acquisition involves various horizontal overlaps and vertical relationships, including the production, supply, trade and third-party trade of the following products: chrome ore, zinc concentrate, zinc, lead concentrate, lead, copper concentrate, renewable copper, refined copper, nickel fine, intermediate cobalt product, refined cobalt, seaborne thermal coal, seaborne coking coal. Thus, MOFCOM determined that the above-mentioned businesses were conducted on a global basis, but mentioned that the transaction will impact China market significantly.


Q4. What impacts would be found out through the Competitive Assessment made by MOFCOM?

A4. MOFCOM provided detailed competition analysis regarding the production and supply of copper concentrate, zinc concentrate and lead concentrate, because China’s demand for these products largely depends on import; and the parties’ combined market shares in these markets are relatively high. It is also found that the acquisition will eliminate and restrict competition in the China markets for copper concentrate, zinc concentrate and lead concentrate


Q5. What are the reasons for those impacts?

A5. The eliminate and restrict competition for copper concentrate, zinc concentrate and lead concentrate that the acquisition could bring to the China markets are mainly due to:

(1) the increase of the resource quantity controlled by Glencore;

(2) the increase of the market shares of Glencore in the sales and production markets;

(3) Glencore’s ability to further integrate vertically the production, supply and trade business of the relevant products after the transaction;

(4) the possibility that Glencore will change the terms of Xstrata’s previous supply contracts from long term contract to spot contract;

(5) high market entry barriers of the relevant markets; and (6) Chinese downstream market players’ lack of negotiation power.


Q6. What specific remedies does the MOFCOM impose on this acquisition?

A6. MOFCOM imposed both structural and behavioral remedies in this deal. Glencore is requested to:

(1)     divest all the equity it holds in Las Bambas copper mine located in Peru within the specified time limit;

(2)     auction with no minimum price all the equity it holds in either one of the four other Xstrata projects, Tampakan, Frieda River, El Pachon or Alumbrera chosen by MOFCOM, if it fails to fulfill the undertaking to divest the Las Bambas project;

(3)     provide long term contract offer of copper concentrate products to China customers for no less than the provided quantity, based on annual benchmark price;

(4)     provide long term contract offer and spot contract offer of zinc concentrate and lead concentrate products to China customers with fair market terms consistent with the practice in the global markets.

this is the second time MOFCOM used “crown jewels”, a mechanism requesting the merging parties to dispose of an alternative set of assets in case the parties fail to divest the original asset package on time.



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