Brussels outlines objections to BHP takeover of Rio

The European Commission yesterday issued its statement of objections to BHP Billiton's proposed $79.5bn (?49.3bn) hostile takeover of mining rival Rio Tinto, with the main competition barriers thought to be in the iron ore market. Neither BHP nor the European Commission made any official comment on the content of the statement. Details are expected to emerge in the coming week, after an edited version is circulated to interested parties, such as the steelmakers who are BHP and Rio's customers. The main objections to the proposed deal are likely to be in the iron ore market. When the Commission opened its in-depth inquiry into BHP's proposed takeover, it said a merged company would hold "a significant share" of iron ore supplies and that its share, plus that of its next competitor, would amount to a "very large part of iron ore supplies". Steelmakers opposed to the move have argued a merger would mean up to 80 per cent of the world seaborne trade in iron ore could be in just two companies' hands - the other being Vale of Brazil - with significant potential implications for pricing power. The Commission has also expressed concerns that the proposed deal would reinforce BHP's leading position in metallurgical coal. When the Commission opened the inquiry, Neelie Kroes, the European Union competition commissioner, warned that a recent surge in commodity prices had significantly affected industries buying commodities produced by the two companies, and said it would be particularly alert to any developments that made the situation worse. Since then commodity prices have dropped sharply because of recession fears. Nevertheless, the Commission still appears concerned about supply issues. Yesterday, as news of the statement of objections broke, the Commission's industry directorate announced its own "strategy" to secure and improve access to raw materials for European industry. BHP will spend the next few days digesting the details of the Commission's lengthy statement and will then assess what it needs to do to win approval for the move. The group will look at whether selling iron ore assets would allay competition concerns, or whether this would wreck the industrial logic for the move, which is based on sharing port and rail infrastructure in Western Australia. A person close to BHP said the group's position had not changed after receiving the statement of objections, and it was still feeling "positive" about its chances of taking over Rio. BHP's shares closed up 7.7 per cent yesterday at ?11.58 while Rio's shares rose 8.1 per cent to ?31.35, amid rising mining stocks. soucrce:www.ft.com