Saturday 18 Aug 2018 | 19:49 | SYDNEY
Saturday 18 Aug 2018 | 19:49 | SYDNEY

BHP-Rio: The mega acquisition

By

Fergus Hanson

@fergushanson

15 April 2008 15:09

BHP's proposed acquisition of Rio Tinto is, no doubt, ready to bounce back to life any day now. So far, BHP has failed to make a bid that Rio Tinto believes represents fair value. But I wonder whether the Australian government and other regulators will allow the merger to take place.  BHP obviously thinks it's in with a good chance. While I'm not an economist, combining the world's biggest mining company with the world's third largest doesn't seem to be issue free.

First, there's the question of competition and consumer interests: the International Iron and Steel Institute  — which represents steel producers — has sounded the alarm on iron ore: combining BHP and Rio would place almost 80 per cent of world seaborne iron ore exports in the hands of two companies...and that's just one commodity. BHP-Rio would also be the biggest supplier of energy coal and copper as well as the world's largest aluminium producer. The ACCC is currently 'monitoring' the proposed acquisition and anticipates carrying out a review in April (other countries' regulatory bodies will also be involved). Second, if BHP's acquisition of Rio goes ahead would this make keeping the company in Australian hands an even bigger national interest? Which brings me to my last question, if the acquisition leads to what others perceive as anti-competitive behaviour, how will countries like China and Japan react? In Japan's case, for example, BHP-Rio would dominate the market: the Japan Iron and Steel Federation estimates a combined BHP-Rio would control 60% of the country's iron ore imports. Stephen Grenville has promised me he'll jump in on this thread, other reader comments are welcome.