BHP-Rio takeover gets ACCC nod

(AAP) Rio Tinto Ltd shares surged on Wednesday after the Australian competition watchdog gave the green light to BHP Billiton's proposed $US120 billion ($A151.32 billion) takeover of the group and declared the deal was unlikely to reduce competition.

The Australian Competition and Consumer Competition (ACCC) noted that its near four
month review of the planned merger had unearthed "significant concerns" about the
takeover's impact on commodities supply and prices, particularly for iron ore.
But the ACCC, which is the second global regulator to wave through the takeover,
believes the concerns voiced by various parties will not result in less robust
competition in Australia.
"While significant concerns were raised by interested parties in Australia and
overseas, the ACCC found that the proposed acquisition would not be likely to
substantially lessen competition in any relevant market," ACCC chairman Graeme
Samuel said in a statement.
Rio Tinto is the world' second biggest producer of the steelmaking commodity, while
BHP Billiton is the third largest.
Rio Tinto shares jumped on the ACCC announcement at 1444 AEST, extending the gains
made earlier in the day, and closed $10.50, or 12.43 per cent higher at $95.00.
BHP Billiton shares put on $1.75, or 5.56 per cent to $32.75.
The ACCC in August had sought additional information from interested parties about
the takeover after its initial inquiries raised concerns the merged entity might
lessen competition for iron ore and drive up prices of the steelmaking commodity.
Vocal opposition to the merger has also emerged from steelmakers in Asia and Europe
amid concerns a combined entity could have enormous control over global iron ore and
other resource commodity prices.
"The ACCC's inquiries indicated that the merged firm would be unlikely to limit its
supply of iron ore, given the uncertainty it would face in relation to the
profitability of this strategy and the risk that limiting supply would encourage
expansions by existing and new suppliers as well sponsorship of alternative
suppliers by steel makers," Mr Samuel said.
The ACCC said despite the high cost barriers to entering the iron ore market its
inquiries found new players, such as Fortescue Metals Group Ltd, had entered the
sector to meet strong demand.
As a result, steelmakers in Australia were unlikely to face higher prices as a
result of the merger.
"There are a number of new iron ore players coming on the scene, there is already
quite a few suppliers here and I think the balance clearly demonstrates that there
is plenty of supply," Ord Minnett analyst Peter Arden said.
BHP Billiton on Wednesday welcomed the ACCC ruling, saying the company's strategic
rationale had always been based on the incentive to produce more product, more
quickly for customers.
"We are very pleased to have received notice that the ACCC will not object to our
proposed acquisition of Rio Tinto," BHP Billiton chief commercial officer Alberto
Calderon said in a statement.
BHP Billiton has proposed an all-scrip takeover of its rival Rio Tinto, which
requires approval from regulators in the European Union (EU), United States,
Australia and South Africa.
The US Department of Justice in July indicated it would not oppose the transaction.
The European Commission, the EU's antitrust regulator, resumed its assessment of the
proposal late last month after suspending its investigation in August, to await
further information from BHP Billiton.
The commission is expected to rule on the proposed transaction on January 15, 2009.
"The European regulators will be the biggest hurdle to get over and I think they
will definitely take heed that Australian regulators have given the ok," DJ
Carmichael analyst James Wilson said.
Rio Tinto, which has rejected BHP Billiton's offer, said a number of regulators are
still considering the matter including, in Europe, Canada, South Africa.
"It is still early to know what the regulatory outcome of the process will be,"
spokesperson Amanda Buckley said.