Charlotte Mathews
16 July 2008
Johannesburg — THE proposed merger of resources giants BHP Billiton and Rio Tinto has provoked protests from customers in Europe and Asia, but in SA the competition implications are still being digested.
BHP tabled its bid for Rio Tinto formally in February, valuing it then at $147 billion, offering 3,4 BHP shares per Rio share.
Rio Tinto's board of directors has described the bid as undervaluing the group, while BHP CEO Marius Kloppers said in December it was "compelling and in the interests of both sets of shareholders".
Before BHP can send out offer documentation, it must receive regulatory approvals for the bid. BHP filed for South African competition authority approval on April 11.
A lawyer, who asked to remain anonymous, said the Competition Commission would normally take between three and six months, to make a recommendation to the Competition Tribunal, depending on the complexity of the investigation.
The US antitrust regulators gave partial approval to the bid earlier this month .
Australia's authorities started their inquiry into the merger last month, and the European Commission started its investigation earlier this month, expressing serious concern about competition issues in iron ore, coal, copper, uranium, aluminium and mineral sands.
Steel makers are worried mainly about overlap between the two companies' iron-ore and coking coal businesses.
The International Iron and Steel Institute, based in Brussels, has called for the deal to be blocked.
Eurofer, a European steel-making body representing ThyssenKrupp and ArcelorMittal among others, also said the deal should be blocked because it would result in three companies controlling 75% of global iron-ore supply.
Rio Tinto and BHP are the second-largest and third-largest iron-ore producers in the world after Vale. Most of their iron-ore operations are in Australia.
The merged entity would have a 37% share of the global seaborne iron-ore market, but BHP argues its share of the wider "contestable" iron-ore market would be only 25%. According to the Financial Times, whether or not the European Commission approves of the bid depends on how markets are defined.
Europe accounts for 15%-16% of global iron-ore demand and China for 50%.
Chinese aluminium producer Chinalco, together with Alcoa of the US, bought a 12% stake in Rio Tinto for $14bn earlier this year. There have been persistent rumours that other Chinese companies will try to buy into Rio Tinto to try to thwart the deal, or into both Rio Tinto and BHP to make the best of it.
In SA, BHP Billiton owns 60% of Samancor Manganese, 50% of Richards Bay Minerals, BHP Billiton Coal SA and the Hillside and Bayside aluminium smelters.
Rio Tinto's presence in SA is much smaller. It holds the other 50% of Richards Bay Minerals, 57% of copper miner Palabora Mining and the Chapudi coal deposit in Limpopo.
Local analysts said SA's competition authorities were likely to talk to their counterparts in other jurisdictions, but would also examine whether there would be any special effect on the South African market.
The lawyer said the most obvious company to be affected by the merger in SA was its biggest steel maker, ArcelorMittal SA, and this company has already protested in Europe through Eurofer.
ArcelorMittal SA spokesman Tami Didiza had not responded by deadline yesterday to a question as to whether it would make a separate protest to the South African competition authorities against the merger.
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