EU outlines objections to BHP-Rio deal

0 Comments | Deseret News (Salt Lake City), Nov 5, 2008 | by Matthew Newman

European regulators have moved a step closer to blocking BHP Billiton Ltd.'s $79.5 billion hostile offer for Rio Tinto Group, which owns Kennecott Utah Copper, by sending a formal complaint that outlines antitrust objections to the deal.

BHP is "continuing to work cooperatively" with the commission and will respond "in due course to address the issues raised," the company said Tuesday in a statement.

Asian and European steelmakers oppose the takeover, saying it would give BHP too much influence over iron-ore prices. 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. BHP, based in Melbourne, Australia, may have to sell iron-ore or coal assets to gain EU approval for the offer, ING Bank NV analyst Nick Hatch said last month.

The commission could use the concerns as a basis to block the deal. In the past four years, it has vetoed Ryanair Holdings Plc's 1.48 billion-euro ($1.9 billion) bid for Aer Lingus Plc and EDP- Energias de Portugal SA's attempt to take joint control of Gas de Portugal.

Companies typically overcome objections through negotiations with the commission on remedies. In some cases, the EU agency approves takeovers after sending objections and doesn't demand divestments or other changes.

Jonathan Todd, a commission spokesman, said the EU's executive arm doesn't comment on merger cases.

The commission stepped up its investigation of BHP's offer in July, after an initial five-week review, saying that it had "serious doubts" about a combination that would control more than a third of the world's iron-ore exports. BHP, already the world's biggest mining company, would also become the largest producer of copper, aluminum, and coal burned in power plants.

The commission restarted its review on Sept. 29 and is scheduled to decide on the deal by Jan. 15.

Australia and the U.S. Justice Department approved the deal without asking for asset sales. South African regulators also approved the bid.

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

BHP Chief Executive Officer Marius Kloppers, who's borrowing $55 billion to pay for the deal, in February increased his offer to 3.4 shares for every one of Rio's, from a 3-for-1 proposal in November 2007.