October 2, 2008

Australia Clears Bid By BHP for Rio

A proposed $114 billion hostile takeover bid by the BHP Billiton mining company of Rio Tinto was cleared by the Australian competition regulator Wednesday, moving BHP a step closer to clinching a deal first announced almost a year ago.

The decision by the Australian Competition and Consumer Commission led to a jump of 12 percent by shares in Rio Tinto, another Australian company, as investors gained confidence that a deal would eventually go ahead.

"For BHP, it's one small step forward, rather than one step backward," said Peter Chilton, an analyst with Constellation Capital Management.

The two groups combined would be worth $220 billion, or nearly as much as Microsoft, and would dominate a mining industry that has spawned several mergers over the past year, including Rio's $38 billion takeover of Alcan and the merger of the Australian mining companies Oxiana and Zinifex to form Oz Minerals.

The crucial hurdle for the takeover, which would be the world's second-largest behind the Vodafone takeover of Mannesman in 2000, is approval from the European Commission.

The commission, the executive arm of the European Union, has signaled that it is worried about the impact of surging commodity prices on manufacturers and consumers. Analysts said it would be risky to assume that it would now clear the deal.

"The EC will be focusing on very different issues and I'm sure European steel makers will be lobbying very strongly against the proposed merger," said Rob Craigie, an analyst with the brokerage FW Holst. "The situation in Europe is very different from Australia and they have totally different customers and supply base."

On Monday, the European Commission set a Jan. 15 deadline for its in-depth review of the BHP bid.

BHP shares rose 5.7 percent to close at 32.75 Australian dollars, or $26.20, while Rio closed up 12.4 percent at 95 dollars, narrowing the discount in Rio's share price to the value of BHP's offer to 14 percent from 19 percent.

The Australian watchdog's main concern had been about the impact of merging the world's No.2 and No.3 iron ore producers, but it said it had been persuaded that the combined group would not corner the market.

"While significant concerns were raised by interested parties in Australia and overseas," the commission's chairman, Graeme Samuel, said in a statement, "the ACCC found that the proposed acquisition would not be likely to substantially lessen competition in any relevant market."

The commission recognized the role steel makers were playing in encouraging new producers, like Fortescue Metals Group and Midwest Corp., which was recently taken over by the Chinese state-owned trading firm Sinosteel.

Samuel said that ACCC had shared information with the European Commission, but made it clear that his commission's ruling looked specifically at the impact of the deal on Australians, especially the smaller steel makers OneSteel and BlueScope Steel.

OneSteel has its own iron ore supply, while BlueScope recently signed a long-term supply deal with BHP, so their situation is different from those of European and Asian steel makers.

BHP welcomed the ACCC's approval, while Rio Tinto stressed that other regulators have yet to rule.

"It's still too early to know what the ultimate outcome will be of the regulatory process, and Rio Tinto continues to provide factual information in response to requests from regulators," a Rio spokeswoman, Amanda Buckley, said.

"Our objection to the BHP offer is that it significantly undervalues the company, and nothing has occurred that changes that," she said.

Originally published by Reuters.

(c) 2008 International Herald Tribune. Provided by ProQuest LLC. All rights Reserved.