New Objections to Mining Merger

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M&A Activity

The latest stumbling block in BHP Billiton’s pursuit of rival Rio Tinto came this Tuesday, when the European Commission pointed out antitrust concerns that would rise from such a deal.

Cleared by the United States, Canada, Australia and South Africa, the proposed bid from the mining giant faces new struggles in Europe. To gain acceptance, European antitrust authorities suggest that BHP Billiton consider new moves, like divesting assets, to avoid creating a price-setting powerhouse.

Steelmakers and other manufacturers agree, and fear that a merger would create a raw material monopoly, controlling copper, coking coal and iron-ore. Despite concerns that a combined company could amp prices at their will while controlling 40 percent of the iron-ore market, BHP Billiton believes that a merger would lower prices. Already the world’s largest mining company, BHP Billiton would cut their own costs through a Rio Tinto merger.

Once valued at $170 billion, the troubled economy has now made  BHP Billiton’s  offer worth a smaller $70 billion. Although analysts believe Rio Tinto could still become receptive to the deal, given their recent debt load and shrinking commodity prices, shareholders from Rio Tinto insist the bid undervalues their company.

In addition to objections from European regulators, BHP Billiton faces recent objections from Japan. Responsible for approximately 15 percent of BHP Billiton’s $60 billion revenues last year, Japan recently “ordered BHP Billiton … to provide details of its proposed $78 billion takeover of Rio Tinto within 11 days or face possible criminal prosecution,” according to a recent article referencing the Japanese Fair Trade Commission. Japan, home to the world’s two largest steelmakers, also hopes the European Union blocks the deal when the European Commission makes their final ruling on January 15, 2009.

–Amy Edwards

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