Jittery Steelmakers Lobby Regulators To Oppose Rio Grab

Sydney Morning Herald

Friday February 8, 2008

Julia May in London

STEELMAKERS fearing a global pricing stranglehold on iron ore are preparing to intensify their fight against BHP's proposed takeover of Rio Tinto.

Eurofer, the European Confederation of Iron and Steel Industries, said it held discussions with a team from the European Competition Commission after presenting 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 entities would control about 70 per cent 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 three-for-one share deal for Rio, which has since been revised up to 3.4 BHP shares for one Rio share.

Japanese steelmakers have also attacked the proposed deal. Hajime Bada, the 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 per cent stake in Rio on February 1.

The Japanese Fair Trade Commission does not have the power to prevent a deal, but the watchdog has reportedly sought discussions with its European counterparts to address the steelmakers' concerns. A BHP-Rio entity would control 60 per cent of Japan's iron ore supply.

Steelmakers are appealing to the EU Competition Commission because of its reputation for a stringent approach to antitrust, merger control and its commitment to large-scale investigations, particularly in the energy, financial services and IT sectors.

Last year the commission imposed a record EUR500 million ($818 million) fine - plus interest - on Microsoft after a three-year antitrust battle, and forced the software giant to allow rivals to use its Windows operating system.

Only two mergers have been blocked under the watch of the EU watchdog's commissioner Neelie Kroes, and BHP will be looking closely at the 2003 merger between Alcan and Pechiney, which the commission cleared with conditions.

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, said: "This is going to be a very long process. The EU investigation is likely to be most detailed."

BHP's chief executive, Marius Kloppers, may therefore have been over optimistic when he told investors in London on Wednesday that he expects regulatory clearances to be overcome in the second half of this year.

© 2008 Sydney Morning Herald

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