Rio Tinto Says Regulators May Block BHP Iron Ore Deal
Rio Tinto Group, the world’s third- largest mining company, said regulators signaled they may object to a proposed iron ore joint venture with BHP Billiton Ltd. as the Age newspaper reported the deal was dead.“The board acknowledged recent communications from regulators that indicate potential obstacles to achieving clearance,” the London-based company said in a statement after an Oct. 4 board meeting. The Japan Fair Trade Commission and the Korea Fair Trade Commission have given Rio interim reports on the venture and Rio said it’s continuing talks with Australian and European regulators.Rio and BHP, the world’s second- and third-largest producers of the steelmaking raw material, agreed in June 2009 to combine mines, railroads and ports in Australia’s Pilbara region in a 50-50 venture. Melbourne-based BHP pledged to make a $5.8 billion equalization payment to Rio as part of the accord that would cuts costs for the companies by $10 billion. The venture, initially due to be co0mpleted by mid-2010, has been delayed as regulators study the plan.“Rio may have decided they don’t need this much as BHP does and I don’t think they do,” said Peter Chilton, who holds shares in BHP and Rio at Constellation Capital Management Ltd. in Sydney. “The compelling argument may be less compelling than it was.Rio rose 2.2 percent to A$78.73 at 11:07 a.m. in Sydney, the highest in almost six months. BHP, based in Melbourne, gained 2.1 percent to a$40.32 on the Australian stock exchange. The benchmark index was 1.4 percent higher.Rio was preparing to tell BHP yesterday that it wants to exit the deal, the Age newspaper reported today, citing people close to the board. It no longer wants to proceed because shareholders oppose the venture, Rio’s financial situation has improved and the deal favors BHP, the report said.“The Rio Tinto board has not made any final decisions about possible outcomes or next steps relating” to the venture, Rio said in the statement. The venture is “still going through the regulatory approvals,” Amanda Buckley, a spokeswoman for BHP, said today by phone.“We would have liked this process to have been quicker and easier,” BHP Chief Executive Officer Marius Kloppers said Aug. 25. “It doesn’t seem to be quick, or easy.”The two companies agreed the deal on June 5, 2009, when Rio, battling high levels of debt, scrapped an investment from Aluminum Corp. of China in favor of raising $21 billion from a share sale and the joint venture. The deals allowed Rio to slash debt without selling bonds and stakes in its largest mines to Chinalco, defusing a backlash from shareholders and politicians.Steelmakers in Japan, the world’s second-largest producer, opposed the joint venture, with the Japan Iron & Steel Federation saying it would limit competition. The venture should be blocked by regulators; the World Steel Association said when the deal was announced. BHP and Rio said they would continue selling their iron ore independently.Australia’s competition regulator said on Sept. 30 it has all the information it needs to rule on the joint venture and the timing of the verdict was up to the companies.“We’ve been ready for some time, but they don’t want us to make a decision,” Graeme Samuel, chairman of the Australian Competition and Consumer Commission, said in an interview. “We’ve got all the information we need.”Lin Enright, a spokeswoman for the commission wasn’t available when contacted at her office today. The European Commission, the European Union’s antitrust regulator, was investigating whether the combination was a restrictive business agreement that may harm competition. South Korea’s antitrust regulator said April 14 it would complete a review of the proposed venture in the second half of this year.BHP abandoned a $66 billion hostile bid for Rio in 2008, citing Rio’s high level of debt and economic uncertainty. That deal won approval from the U.S. Department of Justice and Australia’s competition regulator. The European Commission had asked for divestments in iron ore and coal.