Globe Specialty, FerroAtlantica Face Extended Scrutiny on Planned Merger

NEW YORK  The Deal) -- Globe Specialty Metals (GSM) faces an extended U.S. Department of Justice review of its $3.1 billion acquisition of rival Grupo FerroÁtlantica. Miami-based Globe disclosed the DOJ's second request for information in a filing to the Securities and Exchange Commission Monday.

The combination with Madrid-based FerroÁtlantica would create the world's largest producer of silicon metals, which are critical ingredients for making aluminum, solar panels and other products. FerroÁtlantica is wholly owned by Spain's Grupo Villar Mir, which will own 57% of the new London-headquartered, Nasdaq-listed company after the merger, with current Globe shareholders holding 43%.

The companies said they continue to expect the transaction to close in the fourth quarter of 2015 despite the DOJ's decision to extend the investigation beyond the initial 30-day waiting period. Regarding the antitrust investigation, the companies said in their SEC filing that they "continue working cooperatively with the DOJ as it conducts its review of the proposed business combination."

The companies' merger agreement contains few antitrust safeguards, indicating little concern for antitrust risk. FerroÁtlantica is not entitled to a reverse breakup fee if the deal is terminated due to failure to obtain regulatory approval. The parties are not obligated to accept divestitures or other conditions sought by regulators if such as move would cause a material adverse effect on their businesses.

Globe Specialty Chairman Alan Kestenbaum side-stepped an analyst's question about the companies' possible overlaps during a Feb. 23 conference call to announce the deal. "This has been analyzed and we look forward to working with the regulators and are confident that we'll be able to get through the process successfully," was all he would say when asked about potential competition issues raised by the merger during a Feb. 23 conference call.

Globe Specialty maintains that its business is highly competitive. According to the company's 10-K its primary competitors in the silicon metal and silicon-based alloy markets are Elkem AS, owned by China National Bluestar Group, and FerroAtlantica. There are other significant competitors, though, according to the company, including Rima Industrial and Ligas de Alumino as well as producers in China and the former republics of the Soviet Union. The company also said it faces "continual threats from existing and new competition."

Nevertheless, Globe Specialty characterized itself as a "highly efficient, low-cost producer" which it attributed in part to manufacturing processes that allow it to capture most of its production by-products for reuse or resale. It also has the capacity to react to changes in market demand by switching production between silicon-based alloy and silicon metal production at low cost.

The company, in its 10-K, did acknowledge that new competitors face difficulty entering the market because of a three- to five-year lead time to obtain the necessary governmental approvals followed by construction time and the need to secure supply sources for raw materials and energy. Those barriers to entry could make the DOJ skeptical that any competition lost by the merger could be replaced by new players in the market.

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