Competition Tribunal approves Glencore’s Chevron deal
However, the tribunal has added new BEE and trade conditions
The Competition Tribunal has approved Glencore’s $1bn acquisition of the Chevron SA assets, subject to a range of conditions.
Notably, Glencore will have to beef up the black ownership of the business to 35%. The resources giant must also use its global footprint to give SA-manufactured goods access to overseas markets.
The assets, in which Glencore will acquire a 75% stake, span SA and Botswana and include a 110,000 barrel per day (bpd) refinery, a lubricants plant, 820 petrol stations, and oil storage facilities.
The conditional approval is the third the tribunal has awarded in relation to Chevron SA’s assets in the past year. A year ago, the tribunal conditionally approved the acquisition of Chevron SA by Sinopec, a Hong Kong-based oil company.
However, Glencore bankrolled Off The Shelf Investments — Chevron SA’s empowerment partner with a 23% stake — to exercise its right of first refusal of the deal. With a $1bn loan from Glencore, and another conditional approval from the tribunal, Off The Shelf went on to acquire Chevron SA. Although the intention was always that it would later transfer the controlling stake to Glencore.
Earlier this month, the Competition Commission recommended that the tribunal conditionally approve Glencore’s acquisition of the Chevron assets after it found the deal was unlikely to hinder competition in the sector.
As announced late on Friday afternoon, the tribunal’s approval of the deal carries a number of conditions, most being the same as those applied in the Sinopec and Off The Shelf cases. There are however some added conditions.
As mentioned, Glencore must “increase the broad-based BEE shareholding in Chevron SA from 25% to 35% and retain it at no less than 35%”, the tribunal said in a statement. The requirement for the Sinopec deal was 29%.
According to the merging parties, as represented at a tribunal hearing on the proposed merger earlier this week, Off The Shelf will have the option to increase its minority shareholding from 23% to 30%, and an employee share ownership plan will increase from a 2% stake to 5%.
Another condition, as lobbied for by the economic development minister, is that Glencore “use reasonable endeavours to promote the export and sale of SA manufactured products through the service station network being built up by the Glencore group in Brazil, Mexico and Zimbabwe”, the tribunal said.
The commission acknowledged at the tribunal hearing that it will be difficult to monitor compliance with this condition but that Glencore will account for it in its annual reporting.
The other conditions that applied in the previous cases require, among other things, that there be no retrenchments as a result of the merger. Glencore should also ensure that ongoing contractual obligations towards retired employees of Chevron SA are met.
Glencore must also ensure that existing contracts with independent fuel distributors, the Caltex-branded marketers, are not changed to be less favourable to them. The company must also commit R6bn to refurbish and upgrade Chevron’s Cape Town refinery over the next five years.