EU antitrust authorities concerned over proposed BHP-Rio Tinto merger
19 November 2008
Antitrust authorities of the European Union (EU) have expressed concern that the proposed acquisition of mining giant Rio Tinto by BHP Billiton would hinder competition, especially in iron ore and coking.
Media reports citing unnamed sources with access to the EU document that expresses its reservations on the proposed merger said the EU was concerned that the merger could possibly end in higher prices and reduced choice for customers.
At the beginning of November 2008, BHP Billiton had said that it had received a "statement of objections" to its bid for Rio Tinto from EU antitrust regulators. Rio Tinto has also said that it has received a smaller version of the EU's statement. Both companies have thus far refused comment on the document, which is reported to contain the EU's reservations relating to coking coal and iron ore, including BHP's support for a change in the iron ore benchmark pricing system to an index.
Reports suggested that the EU is substantially concerned that the unified entity post merger could force the index system onto the market, while the combined ferrous metals production of the merged companies would also hold substantial sway on the market.
Reports said that aluminium, uranium and mineral sands were not being looked at further. They also suggested that BHP Billiton would now list out which iron ore mines it could sell or spin off to win European Commission approval for its $62 billion hostile takeover of rival Rio Tinto, in around two weeks.
The merger is being fought tooth and nail by the steel industry on the grounds that the combined entity would command too strong an influence over the price of iron ore, which is the main input for making steel. Rio Tinto and BHP Billiton rank second and third in terms of iron ore production, below Brazilian mining entity Vale. The combined entity which would emerge if a merger goes through would command almost 40 per cent of the seaborne iron ore market.
BHP Rio Tinto presently hold sway over the Australian iron ore industry, which is the main reason that the EU's competition regulators and antitrust authorities are likely to ask that some of those assets should be disposed off as a precondition to their nod for the proposed deal.