BHP's Rio Bid Gains Australian Regulator's Clearance

BHP's Rio Bid Gains Australian Regulator's Clearance

Oct. 1 (Bloomberg) -- BHP Billiton Ltd. won approval from Australia's competition regulator for its hostile $101 billion all-share bid for Rio Tinto Group, boosting speculation that the world's largest mining takeover may succeed.

``The proposed acquisition would not be likely to substantially lessen competition in any relevant market,'' the Australian Competition and Consumer Commission said today in a statement. The watchdog did not request asset sales or undertakings from BHP should it succeed in taking over its rival.

Asian and European steelmakers oppose the combination that would control more than a third of global ore, saying it would give BHP too much influence over prices. Rio's Australian shares surged as much 17 percent after the commission's statement.

``This is a big win for BHP and it's done a very good job of lobbying the ACCC,'' said Ric Ronge, who helps manage A$1.6 billion ($1.3 billion) at Pengana Capital. He had expected BHP would have to give undertakings to the regulator. ``The best thing Rio can do now is to let people know how good its company is.''

BHP, the world's largest mining company, rose as much as 7.7 percent to A$33.40 after the statement, and closed at A$32.75 on the Australian Stock Exchange. London-based Rio rose by as much as A$14.10 to A$98.60 and closed at A$95.00.

The combined companies would vie with Brazil's Cia. Vale do Rio Doce as the world's largest supplier of the raw material used to make steel. Based on yesterday's closing prices in London, Rio had been trading at a 20.5 percent discount to BHP's offer.

More Information

The Australian commission had earlier expressed concern the combination would be able to influence global supply and prices for iron ore, according to an Aug. 22 statement. It asked BHP to supply further information.

``There are a number of antitrust regulators still considering this matter including Europe, Canada and South Africa,'' Rio spokesperson Amanda Buckley said by phone from Melbourne. Rio is providing factual information to the regulators, she said. ``It is still too early to know what the ultimate outcome of the regulatory process will be.''

BHP welcomed today's decision, the Melbourne-based company said in a statement to the exchange.

Rio shares reversed from a 13.8 percent premium to BHP's offer in April to a record discount of 24.4 percent on Sept. 29 as investors lost confidence the bid would succeed.

`Unlikely to Limit'

``The merged firm would be unlikely to limit its supply of iron ore given the uncertainty it would face in relation to the profitability in this strategy,'' Graeme Samuel, the Australian commission's chairman, said in today's statement.

European Union antitrust regulators resumed their review of the bid this week after saying in July they had ``serious doubts'' about the proposed deal. The European Commission, the 27-nation regulator for the European Union, said it will rule on the transaction by Jan. 15. It had suspended the review on Aug. 25 pending more information from BHP.

``The ACCC's decision severely undermines anything from the EU regulator in trying to put a roadblock in front of the deal,'' Ronge said today.

Rio, the world's second-largest iron-ore producer, rejected BHP's sweetened, all-share offer on Feb. 6, saying it significantly undervalued the company and its growth prospects.

BHP Chief Executive Officer Marius Kloppers, who's borrowing a record $55 billion to pay for the deal, increased his offer to 3.4 shares for every one of Rio's, from a 3-for-1 proposal in November.

Convince Investors

Falling commodity prices and a slowing global economy will help convince investors to support the bid, Kloppers has said, adding that shareholders are likely to favor the takeover because BHP has higher profit margins and lower debt than Rio.

The Antitrust Division of the U.S. Department of Justice gave partial approval to the bid on July 3. The takeover also needs agreement from South Africa.

Posco, Asia's third-biggest steelmaker, said a merger of BHP and Rio ``will form a monopoly,'' according to Nov. 22, 2007 comments from Kwon Young Tae, executive vice president in charge of the raw-materials department at the Pohang, South Korea-based company. Posco spokeswoman Ko Min Jin said today there is no new comment and that Kwon is traveling.

JFE Steel Corp. President Hajime Bada said last year he was opposed to the proposed merger as it would be ``harmful to the fair trade of iron ore and high-grade coking coal.''

BLOOMBERG