BHP gets EU objections document on Rio bid

 

LONDON: BHP Billiton has received a document from European regulators detailing anti-trust hurdles to the company’s US$78 billion takeover bid for Rio Tinto, BHP said on yesterday.

BHP, the world’s biggest mining group, declined to give any details of the content of the Statement of Objections and the European Commission declined to comment.

The Commission has previously said it had sweeping concerns that the combination of the two groups might result in higher prices and reduced choice for customers.

Analysts have said the main issue revolves around iron ore, since Rio Tinto and BHP are the world’s second- and third-largest iron ore producers, respectively, behind Brazil’s Vale.

BHP said in a short statement it would work with the Commission to try to resolve its concerns.

“BHP Billiton is continuing to work cooperatively with the European Commission and, in accordance with the established merger review process, will be responding in due course to address the issues raised.”

BHP shares in London, which have halved from their peak on May 19, shed 0.84 per cent to 1,068 pence by 1156 GMT, lagging a 0.3 per cent increase in the UK mining index.

Rio shares fell 2.5 per cent to 2,827 pence, a discount of 23 per cent to BHP’s bid of 3.4 shares for each Rio share, reflecting market doubt on whether the EU will approve the deal.

SELL ASSETS?

Rio Tinto has repeatedly spurned the bid as too low, saying it undervalues the firm and its growth prospects.

BHP says the marriage would reap US$3.7 billion in synergies benefits after seven years, with great cost savings due to the fact that both firms’ main iron ore operations are in Australia’s Pilbara region.

But Chief Executive Marius Kloppers said in September the group might review its hostile bid if European regulators forced it to sell a lot of assets.

Analyst Michael Rawlinson said in a research note that BHP and the EU would likely hammer out a deal.

“We believe the changing dynamics of the iron ore market...
along with potential divestitures, will ultimately lead the EC to approve the deal and expect that once this critical path is cleared, the offer will be launched in early 2009,” he said.

Huge demand from China for iron ore to build infrastructure led to several years of booming prices, including a near doubling of annual contract prices this year.

But the global economic downturn has led to cutbacks in steel output in recent months, weaker demand for iron ore and sliding spot prices.

The all-share offer would create a mining group controlling more than a third of the world’s seaborne trade in iron ore, the main raw material for steelmaking.

Steel firms throughout the world, including in Europe, have vehemently opposed the merger and have urged the EU to reject the takeover.

Competition regulators in Australia and the United States have already approved the deal.

The Commission said when it launched an in-depth, second-phase investigation on July 4 that it also had concerns about the markets in coal, uranium, aluminium and mineral sands. - Reuters