December 04, 2008

BHPB bid for Rio - - Anti monopoly issues

According to independent competition lawyers and industry observers, a merger between mining giants BHP Billiton and Rio Tinto would likely trigger in depth investigations by competition authorities given the size and product overlaps of the companies.

Given the presence of the companies in numerous countries, the deal would likely require competition approvals in several jurisdictions. They will likely need approvals in the US and EU, but other jurisdictions such as South Africa, Canada, Brazil and New Zealand could well be involved too.

An competition lawyer said that “The assumption is that at least somewhere in the world there will be an in depth investigation unless they get rid of the problems upfront. But some enormous transactions have been cleared at Phase I when parties had addressed issues ahead.”

However experts feel that the length of such investigations could, however, is shortened if parties were to offer an upfront divestment package or if BHP Billiton were to carve out areas of concerns through a joint bid with another player.

An industry observer pointed out that a major issue was the iron ore market in Far East Asia and Australia. He said “Brazilian CVRD serves mainly North America and Europe while Rio Tinto and BHP are predominantly in Far East Asia and Australia, and I cannot see such a monopoly as a result of their combination going through.” He said that disposals would be required, but pointed out that “The companies could not cherry pick the bits they do not want because mines come as part of integrated businesses with railway and port activities and will have to be sold as that.”