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.
July 4, 2008
July 4th (BBC News) – The European Commission has opened an in-depth probe into mining giant BHP Billiton’s $170bn (£85.7bn) unsolicited bid for rival company Rio Tinto.
A tie-up between BHP and Rio would create a firm with a third of the world’s iron-ore market, raising fears that it would be too powerful.
The EU listed its concerns but said BHP would be able respond, adding the findings had not been pre-judged.
Rio has fended off the offer, saying it did not meet the value of its assets.
Besides iron ore, the commission raised concerns over the markets for coal, uranium, aluminium and mineral sands, saying the proposed takeover could result in higher prices and reduced choice for customers of the two companies.
Competition commissioner Neelie Kroes added that the products made by the two firms were the key components of many major European industries.
“The recent surge in commodity prices has had a serious impact on the industries buying these commodities, their customers, and ultimately all the consumers in Europe and elsewhere in the world,” she said.
The commission’s role was “to ensure that this takeover does not adversely affect competition in Europe”, Ms Kroes added.
BHP Billiton is offering 3.4 of its shares for each Rio Tinto share – which Rio is strongly resisting.
US regulators have approved the deal but, like the EU, Australia’s regulators are also sceptical.
News of the probe came as BHP Billiton said it had reached a deal with China’s largest steelmaker to almost double iron ore prices.
Under the agreement, covering contracts for one year from 1 April 2008, BHP will increase its prices by up to 96.5% for deliveries to state-owned Baosteel.
The news comes days after BHP’s rival Rio Tinto secured similar price rises with Chinese and other Asian firms.
Deals by the two groups are closely watched as they determine what smaller firms can expect to charge each year.
After announcing the deal at the Australian stock exchange, Anglo-Australian firm BHP added that it hoped to secure further agreements with other customers in China and Asia.
Soaring demand from China and rising commodity prices have led to strong profits for mining firms, who are in turn pumping more money into boosting output.
June 20th (Bloomberg) – Cia. Vale do Rio Doce sent teams to assess Anglo American Plc units in preparation for a possible acquisition offer that would make it the world’s biggest mining company, O Estado de S. Paulo reported.
Technicians from Vale, the world’s biggest iron-ore producer, visited Anglo operations in Brazil, South Africa, Colombia and Australia, Estado said, citing people connected to Vale. The Brazilian company is also considering bids for Freeport-McMoRan Copper & Gold Inc. or Alcoa Inc. as it seeks to overtake BHP Billiton Ltd. as the top mining company, the newspaper said.
Vale is negotiating financing with 10 banks, Estado said. They include HSBC Holdings Plc, Banco Santander SA, BNP Paribas SA, Royal Bank of Scotland Group Plc, Citigroup Inc. and Credit Suisse Group AG, which were among eight banks that had pledged $50 billion for Vale’s failed bid for Xstrata Plc earlier this year.
A Vale official in Rio de Janeiro declined to confirm to Bloomberg News that the company had sent staff to evaluate the assets of Anglo or any other company.
June 16, 2008
June 16th (Reuters) – Global miner Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz) (RIO.L: Quote, Profile, Research, Stock Buzz) talked up its growth prospects on Monday, insisting a major new iron-ore project was still on track, as it sought to fend of a hostile, $180 billion bid from rival BHP Billiton.
Rio Tinto has rejected as the all-share proposal as too low from BHP, which wants to buy its nearest rival to cut costs, grab a bigger share of world metals markets and boost pricing power.
“We remain confident that the medium- to long-term trend is for a sustained and substantial increase in demand for metals and resources,” Rio Chief Executive Tom Albanese told an Australia-Israel Chamber of Commerce luncheon.
BHP is offering 3.4 of its own shares for each Rio share.
In stressing Rio’s growth prospects, Albanese sought to ease some concerns surrounding its giant iron-ore project at Simandou in the west African country of Guinea. Last week, Rio said Guinea was reviewing its award of the mining concession.
“We are confident. We are continuing to proceed with the project,” Albanese told reporters.
He also said there was a case for caution in allowing investment by foreign state-owned entities in Australia’s booming resources sector, but added that their money also provided opportunities for growth.
“Certainly the emergence of sovereign wealth funds has attracted plenty of headlines in recent months,” he said.
“While I agree there is a case for prudence, I don’t think that Australia would want to miss out on this substantial opportunity by not taking advantage of the full breadth of global capital and global relationships that might be on offer in its own region.”
State-backed Chinese metals firms have been looking to boost their interest in Australian raw-materials suppliers. Aluminium group Chinalco in March bought a 9 percent stake in Rio.
Press reports last week said three Chinese steel makers, Baosteel (600019.SS: Quote, Profile, Research, Stock Buzz), Wugang and Angang (0347.HK: Quote, Profile, Research, Stock Buzz), hoped to come together to invest in BHP.
BHP chief Marius Kloppers said last week he would not be surprised if a Chinese entity took a stake in BHP.
China has also been looking to increase its stakes in small and medium-sized Australian miners and prospectors, partly in response to the surge in prices being charged by the global giants like BHP and Rio.
In a separate announcement on Monday, Rio, the world’s second-largest iron ore miner, said it would spend $350 million to introduce driverless trains on its iron-ore railway in western Australia.
June 10, 2008
June 10th (Herald Tribune) – Kazakh miner Kazakhmys is due to become the biggest shareholder in its bigger rival ENRC by buying a 7.7 percent stake from the government, boosting the chances of a merger, analysts said.
Kazakhmys said on Tuesday it had no immediate plans to launch a full takeover, but analysts said the stake building raises the game as the rivals jostle for position.
“The probability of the eventual combination of the two companies has clearly been raised following this news, with KAZ’s positioning relative to ENRC improved too,” said Liberium Capital analyst Michael Rawlinson.
ENRC shares jumped 5 percent to 1,391 pence while Kazakhmys shares rose 1.3 percent to 1,648 pence by 10:35 a.m., compared with a 0.7 percent fall in the mining index .
The market was expecting Kazakhmys to sell its ENRC stake after a lock-up on the shares expired on Friday. The overhang has helped take 14 percent off its share price since May 19.
Kazakhmys, which ENRC has looked at buying recently, paid for the ENRC stake — which now stands at 22.2 percent — by issuing 80.3 million of its shares to the government.
“We view the 7 percent top up is worth more to Kazakhmys than they paid because it takes them to a more influential blocking position without a premium and allows them to take the associate earnings through their income statement,” said Rawlinson.
After adjusting for share dilution, the move would boost estimated earnings next year by 19 percent, he added.
NO CURRENT BID PLANS
Kazakhmys, the world’s No. 10 copper producer, said it had no plans at the moment to bid for all of ENRC, but hoped to work with its rival.
“There are plenty of options for cooperation open at the moment, but we really need time to explore them,” Chief Executive Oleg Novachuk told a conference call.
He said the government had an interest in spreading its investments between the nation’s two major mining groups.
“With this investment, the government of Kazakhstan has diversified their investments across the two major listed Kazakh resource companies.”
With the move, the government got a 15 percent stake in Kazakhmys and cut its stake in ENRC to 11.7 percent.
Analysts have said that the government eventually would like to create a national champion mining group that could expand in the region and abroad, but Novachuk declined to comment on this possible scenario.
ENRC is the world’s No. 1 producer of ferrochrome and a major exporter of iron ore with a market capitalisation of $33.l7 billion (16.9 billion pounds), more than twice that of Kazakhmys at $14.6 billion.
ENRC, which floated on the London stock exchange in December, said on March 12 it was considering a takeover of its rival, but failed to submit any offer until last month when it made a non-binding proposal.
Kazakhmys rejected ENRC’s 7.05 billion pound approach, which later said it had decided not to launch a formal bid.
June 6, 2008
June 6th (The Sydney Morning Herald) – The competition watchdog has commenced its review of the proposed acquisition of Rio Tinto by BHP Billiton.
Australian Competition and Consumer Commission (ACCC) has received a submission from BHP Billiton about its plan to buy its rival for about $US170 billion ($A178 billion).
The ACCC will assess the proposed merger and is inviting comment from other participants in the mining industry, customers and other interested parties.
“The ACCC will also be seeking talks with industry participants over the coming weeks,” it said.
Written submissions are required by July 1.
BHP Billiton chief executive Marius Kloppers said on Thursday he was confident the proposed takeover would be successful.
He said it would not present any no economic issues for steelmakers and customers.
BHP Billiton, the world’s largest mining company, last week kicked off the formal regulatory process for the bid when it filed its first paperwork with the European Commission, the European Union’s antitrust regulator.
BHP Billiton is offering 3.4 shares for every Rio Tinto share, valuing the deal at about $US170 billion ($A178 billion).
The European Commission has between 25 and 35 working days to approve the deal after receiving the paperwork, or begin a five-month period considering the takeover in more detail.
Steelmakers have expressed concern about reduced competition and stronger pricing control by a merged group.
It is widely believed that BHP Billiton may have to dispose some assets for the takeover to succeed, particularly iron ore assets.
However, Mr Kloppers said no “remedies” – in the form of divestments – were presented to European regulators to appease any potential competition concerns.
The company must also submit documents with regulators in South Africa and United States.
May 31, 2008
May 31 (Guardian) – BHP Billiton formally asked the European commission yesterday to approve its $180bn (£90bn) bid for rival mining group Rio Tinto.
Rio Tinto has already rejected the offer, which was announced in February, and BHP’s plans face strong opposition from Europe’s steel producers.
A combination of BHP and Rio Tinto would control a third of the world’s seaborne trade in iron ore and steel-makers are worried that a merged group would unduly influence prices.
Gordon Moffat, head of the steel industry body Eurofer, said: “We cannot believe that the commission will authorise the merger of two of the three mining companies which are dominating almost 75%of the world market for seaborne iron ore. This is not in the interest of the European steel industry.”
The other leading player in the seaborne iron-ore sector is Companhia Vale do Rio Doce.
Despite the merger of the world’s top two steel-makers, Mittal and Arcelor, the global steel industry remains fragmented and producers are concerned that they do not have the scale to match that of the mining companies on which they depend for their raw materials.