A proposed $170bn takeover of miner Rio Tinto by Australia's BHP Billiton hit a roadblock on Friday when European competition regulators announced an in-depth inquiry into the deal after initial investigations raised "serious doubts".
Neelie Kroes, the EU competition commissioner, warned that a recent surge in commodity prices had significantly affected industries buying commodities produced by the two companies.
"In this very sensitive context, any change making the situation worse could be extremely harmful," she said.
"Therefore the [European] Commission will pay particular attention to ensure that this takeover does not adversely affect competition in Europe."
The Commission said the main commodities at stake in its investigation - which can now run until November 11 - were iron ore, coal, uranium, aluminium and mineral sands.
It said a preliminary investigation found that, after the takeover, the merged company would hold "a significant share" of iron ore supplies and that its share, plus that of its next competitor, would amount to a "very large part of iron ore supplies".
Steelmakers opposed to the deal argue that the merger would mean up to80 per cent of the world seaborne trade in iron ore could be in just two companies' hand - with significant potential implications for pricing power.
The Commission also said that the proposed deal would reinforce BHP Billiton's position in metallurgical coal, "with smaller competitors far behind".
"By increasing the new entity's market power in iron ore and metallurgical coal, there is a serious risk that the planned takeover could have a negative impact on the outcome of price negotiations with steel customers," the Commission said.
"Furthermore, 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," it added.
News that the European regulator is moving to a full-blown investigation comes just a couple of days after the deal obtained effective clearance in the US.
However, the proposed merger is likely to have a much smaller effect there than in Asia and Europe.
In Brussels, the European commission has had a large team working on the matter since early this year.
It has already received submissions from opponents of the deal, including European steelmakers. A longer, in-depth investigation was thought to be a near-certainty in Brussels.
Some advisers and lawyers admit privately that they expect the European inquiry effectively to give a lead to other international regulators who are investigating the deal.
Marius Kloppers, BHP Billiton chief executive, expressed confidence last month that the deal would eventually be cleared but would not say whether assets would need to be sold to obtain approval.
Sourc: Financial Times
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