BHP-Rio Merger to Face another Hurdle

Submitted by Jim Thesiger on 18 March, 2010 - 06:35

The biggest consumer of iron ore China may initiate an investigation and challenge the $US116 billion worth of Pilbara merger of Rio Tinto (RIO) and BHP Billiton (BHP) based on the advice from Allan Fels (an ex-Australian competition tsar) that it does have the right to challenge the merger as the country believes that the proposed merger may hurt the competition and can increase the price of iron ore. Although the European Commission is expected to be the major institution to oppose the proposed merger, but talks have been held among the two leading mining giants and the Chinese competition regulator with the miner preparing to submit documents to the Chinese authority regarding the proposed alliance.

According to Dr Fels, the Chinese authority asked him to provide advice regarding the new competition law implemented by the country whether it gives them the necessary jurisdiction to investigate the BHP-Rio merger- something that will establish an effective duopoly in the iron industry involving Rio Tinto-BHP Billiton and Brazil based Vale as far as the seaborne iron ore market is taken under consideration. Mr. Fels stated that the Chinese authority was not happy at all regarding the BHP-Rio alliance and the Ministry of Commerce (MOFCOM) officials asked for his advice whether they had the authority to launch an investigation on that issue in response to which he informed them that they do have the right to do so.

It is to be mentioned that, according to the Chinese law, the regulator of that country does reserve the right to investigate a merger which can have impact in their local market regardless of whether the agreement is taking place in or outside China and the companies involved in the deal have considerable amount of assets in that country. The Australian and European regulators are already examining the merger and the Chinese analysts believe that coordinated action can be taken by the regulators all over the world to deal with the situation.