Industry And Competitors Fear Steel Stranglehold
The Age
Friday February 8, 2008
STEEL makers fearing a global pricing stranglehold on iron ore are preparing to intensify their fight against BHP's proposed $165 billion takeover of Rio Tinto.
Eurofer, the European confederation of iron and steel industries, said it had already held discussions with a team from the European Competition Commission, after presenting its preliminary documents. Eurofer is believed to have detailed its concerns that a merger between BHP and Rio would create a duopoly between BHP-Rio and the Brazilian miner Vale in the global supply of iron ore.The two proposed entities would control about 70% of the global iron ore supply. However, regulatory approvals would be required only if Rio agrees to the merger.Eurofer, together with the International Iron and Steel Institute, came out against the deal in November, when BHP revealed its indicative 3-1 share deal for Rio, which has since been revised up to 3.4 BHP shares for one Rio share. IISI's secretary general, Ian Christmas, said then: "Any further consolidation between the big three (BHP, Rio and Vale) would create a virtual monopoly. This merger is not in the public interest and should not be allowed to proceed."Japanese steel makers have also attacked the proposed deal. Hajime Bada, president of JFE Holdings, the country's second-largest steel company, and chairman of the Japanese steel lobby group, told ABC radio yesterday that he would lobby Australian and European regulators to block the proposed takeover by BHP or any bid by Chinalco, the state-owned Chinese aluminium producer that, with Alcoa, took a 9% stake in Rio on February 1. The Japanese Fair Trade Commission does not have the power to prevent a deal, but the competition watchdog has reportedly sought discussions with its European counterparts to address the steel makers' concerns. A combined BHP-Rio would control about 60% of Japan's iron ore supply.Last year the EU Competition Commission imposed a record EUR500 million ($A817.5 million) fine - plus interest - on Microsoft after a three-year antitrust battle, and forced the software giant to allow rivals to operate its Windows operating system. However, only two mergers have been blocked under the watch of its formidable commissioner, Neelie Kroes, and BHP will be looking closely at the 2003 merger between Alcan and Pechiney, which the commission cleared with conditions but without a lengthy investigation after the companies initiated divestments of their assets.However, the Global Competition Review found in a survey last year that the commission was "one of the slowest investigators" internationally, and the publication criticised its "insufficient use of economic reasoning". The expected regulatory hurdles have led analysts and investors to predict a drawn-out process, should the merger go ahead. A metals and mining analyst with Seymour Pierce, Charles Kernot, told the BBC: "This is going to be a very long process. The EU investigation is likely to be most detailed," Mr Kernot says. BHP chief executive Marius Kloppers may have been overly optimistic when he told investors in London on Wednesday that he expected regulatory clearances to be overcome in the second half of this year. He did concede that the EU review process was likely to go to a phase II - not surprising given the overlap between BHP and Rio not just in iron ore but also in diamonds, alumina and uranium.
© 2008 The Age