The European Commission has cleared commodities trading group Trafigura's minority holding in Belgium-based zinc and lead producer Nyrstar.
In November, Trafigura told the EC its minority 20.02% stake in Nyrstar -- held through its subsidiary Urion Holdings (Malta) Ltd. -- had reached a point at which under EU merger regulations it could give Trafigura "de facto sole control".
The EC said Trafigura had been building its stake in Nyrstar over time until reaching a level of around 20%, which, on the basis of historical attendance rates of Nyrstar's shareholders' meetings, "leads to control over a stable majority of votes", as a result of which the transaction was deemed to be notifiable under EU merger rules.
The EC said it had concluded, however, this would not raise competition concerns in the European Economic Area market for zinc metal because "the companies are not close competitors and alternative suppliers would remain active".
Nyrstar supplies zinc metal to trading group Noble on the basis of an existing long-term contract, the EC said, noting that Noble, a competitor to Trafigura, has recently established a significant position in the zinc market in the EEA.
The EC investigated "the potential consequences should the supply relationship with Noble be terminated after the merger", and decided there would be no adverse effects for competition in the market for zinc metal in the EEA, it said.
That was "because Noble could secure zinc metal from other sources. Secondly, because even if some customers were to leave Noble, they would have alternatives in the market other than Trafigura," the EC said.
The EC also examined the vertical relationship arising from Trafigura's supply of zinc concentrate that can be used as an input for Nyrstar's production of zinc metal.
It concluded the combination of the two companies "would be unable to hinder competing zinc metal producers from access to zinc concentrate, because several other zinc concentrate sources would remain available, including the possibility for many of internal sourcing."
Moreover, the EFC said: "Although Nyrstar is an important purchaser of zinc concentrates, suppliers competing with Trafigura would still have a sufficient customer base as several other purchasers would remain active in the market."
Nyrstar said in a statement: "This satisfies a condition precedent to Trafigura's subscription and underwriting commitment of up to Eur125 million [$135 million] in Nyrstar's proposed capital increase in cash by offering new shares in an offering with statutory preferential subscription rights for the existing shareholders of the company."
In November, Nyrstar said it had executed an agreement with Trafigura "to govern its relationship with Trafigura and ensure that all business transactions are conducted at arm's length and on normal commercial terms."
The agreement, which will have effect for as long as Trafigura holds at least 20% but less than 50% of Nyrstar shares, stipulated, among other things, that "Trafigura (along with any person acting in concert) will not acquire any shares or voting rights in the company that would bring its aggregate holding of shares or voting rights to a level above 49.9% of the outstanding shares or voting rights of the company", Nyrstar said.
The agreement also said Trafigura "does not intend to and will not solicit, launch or publicly announce the solicitation or launching of a private or public offer or any proxy solicitation with respect to all or substantially all of the voting securities of the company that is not recommended or otherwise supported by the board of directors of the company," Nyrstar also said.
The restrictions lapse, however, in the case of a tender offer by a third party or an acquisition by a third party exceeding 10% of the shares in the company.
Nyrstar intends to raise Eur250-275 million via a rights issue, to which Trafigura -- subject to the fulfillment of certain conditions including regulatory clearances -- plans to subscribe a maximum Eur125 million, the company said at the time.
As a result, Trafigura's shareholding may rise above the 30% threshold that, under Belgian takeover rules, obliges shareholders to carry out a mandatory tender offer for the outstanding voting securities of a company, Nyrstar noted.
This obligation does not apply, however, "if the 30% threshold is crossed within the framework of a rights offering that has been approved by the general shareholders' meeting," the company said.
In addition to the relationship agreement, Nyrstar said it had negotiated commercial agreements with Trafigura -- subject to conditions, including all relevant regulatory clearances -- comprising zinc concentrate and lead concentrate purchase agreements, and zinc metal and lead metal sales agreements.
Nyrstar's metals processing operations produced 835,000 mt of zinc metal and 133,000 mt of lead metal in the first nine months of 2015. The company reported underlying EBITDA of Eur215 million for the period, up 38% year on year.
This week, Trafigura reported increased profits for its 2014-15 financial year on the back of increased volumes in both of its trading divisions, oil and petroleum products and metals and minerals.
After taking account of investment gains and writedowns, net profit reported by Trafigura Group Pte Ltd. -- the new Singapore-registered consolidated reporting entity for the group -- was $1.103 billion for the 12 months to September 30, up 6.5% year on year.
