BHP plays wait and see on Rio offer

July 11, 2008

July 11th (The Sydney Morning Herald) – BHP Billiton has given the first public indication it has no plans to raise its $US170 billion bid for Rio Tinto until the European competition regulator fully reviews the deal.

BHP’s chairman, Don Argus, told Britain’s Daily Mail it was “prudent” for the company to understand the regulatory requirements before re-assessing the offer price.

The European Commission last week launched a “phase two” examination of the deal, amid concerns over increased concentration in the iron ore, coal, uranium, aluminium and industrial minerals markets.

BHP could be required to offer remedies to please the regulator, such as asset sales, in order to gain approval to proceed with the conditional bid.

“Once we have completed that [commission] process, there will be a decision made as to whether we endeavour to re-engage with Rio, or whether we continue down the path that eventually leads to a proxy battle – or a decision by the shareholders as to whether they think the 45 per cent premium can be delivered by the current management or whether there is another option for them,” Mr Argus said.

His comments suggest BHP has no interest in seeking Rio’s assistance in obtaining regulatory approval. Rio has said it would answer any questions from the commission and had not objected to the deal on competition grounds, but its help could have been useful.

Rio has refused to discuss the bid, which it has deemed inadequate, with BHP. Rio has said it would not engage until BHP made more acceptable offer.

In recent months Rio shares have traded consistently below BHP’s 3.4-for-1 scrip offer price. Market commentators have attributed this to several factors, including high oil prices working in BHP’s favour, uncertainty the commission will approve the deal and the absence of much hedge fund activity due to the credit crunch. The commission is expected to provide a ruling in December, but it could choose to extend the process.

BHP is likely to be most sensitive about divesting any Pilbara iron ore assets, since the cost savings of combining the businesses are believed to be huge.

This week, a group of German industrial federations reportedly wrote to the commission to voice objections to the deal, calling for more competition in the markets for iron ore and coking coal.


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