The insistence of BHP Billiton's chief executive, Marius Kloppers, that his company's bid for Rio Tinto is about "more volume, more quickly" rather than increased pricing power faces a potentially deal-breaking test by Europe's competition regulator.
On Friday the European Commission started a "phase two" investigation into the proposed $US170 billion ($176.5 billion) deal. The inquiry could scupper the merger, depending on the extent of remedies required for approval.
The investigation is due to conclude on December 9 but the commission could extend it.
BHP has long prepared for the second-stage process, having admitted the deal was unlikely to be cleared in the first.
The commission said concerns had arisen regarding the markets for iron ore, coal, uranium, aluminium and mineral sands, but its statement appeared to focus particularly on the steel-making materials of iron ore and coking coal.
Analysts believe BHP is most concerned about maintaining control of Rio Tinto's Pilbara iron ore operations because their combination would represent the greatest opportunity for cost savings. When BHP launched its formal bid for Rio in February - conditional on commission approval - it maintained its right to drop the bid if Rio disposed of any material iron ore assets in the context of that division.
For all other divisions, BHP reserved the right only to withdraw its offer if the disposal or acquisition was material in the context of Rio as a whole. The commission is expected to release its objections by September. BHP could use this as the basis for offering specific remedies.
Last week, the steel producer ArcelorMittal expressed interest in buying Rio's Canadian iron ore business if it was sold as part of the merger. But given the Canadian business supplies a different type of ore to a different market from the Australian business, it is unclear whether the commission would accept this as an appropriate remedy. In a statement that was unlikely to surprise the market, based on objections already voiced by steel makers, the commission said the merged company's market power in iron ore and coking coal meant there was a serious risk that the takeover could have a negative effect on the outcome of pricing negotiations with steel customers.
But the commission also took issue with Mr Kloppers' claim that the merger would benefit customers by providing BHP with the ability to increase volume more quickly.
"There is a serious risk that the merged entity might have the incentive to reduce the scale of its investment projects or slow down such investment, and so reduce supplies available on the market and increase prices," the commission said.
A BHP spokeswoman did not clarify whether the company could give undertakings that it would proceed with both companies' planned development pipelines in order to assuage those concerns.
In addition to iron ore and coking coal, the commission said nuclear power plant operators had raised questions over the increased concentration in the uranium industry.
In a brief statement, it added that there were also concerns over aluminium and mineral sands. It did not raise questions over the copper and diamond markets.
Source: Sydney Morning Herald
No comments:
Post a Comment