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Chinese steelmaker wants Rio Tinto takeover stopped
2007-12-07
China's largest steel company Baosteel called Friday on the Australian government to intervene to prevent BHP Billiton from taking over rival miner Rio Tinto. Rio Tinto has rejected an unsolicited three-for-one scrip offer from the world's biggest miner, saying it significantly undervalues its assets. But BHP Billiton has said it still hopes the Anglo-Australian group will warm to its advances and it believes the takeover is in the interests of shareholders of both companies. Fang Xiaodong, senior manager of strategy and planning at Baosteel, told Australia's ABC radio that Prime Minister Kevin Rudd's government should act. "I think the Australian government should take some anti-monopoly action to prevent the merger of BHP and Rio because this kind of behaviour will damage free competition," Fang said from Beijing. Tom Albanese, the chief executive of Rio Tinto which is the world's third largest mining group, has described the BHP proposal as "dead in the water" but speculation has continued about the possibility of a merger. Opposition to the takeover has also emerged from other clients in Asia and Europe worried that a consolidated company would have too much control over the price of raw materials. Baosteel has denied media reports that it was considering bidding for Rio Tinto itself, saying it was merely "studying" the BHP Billiton offer. But it noted the sensitivities involved if BHP Billiton was to combine with Rio Tinto to become the dominant player in iron ore production -- particularly as the companies had been able to extract spectacular price rises for contracts in the past. "Baosteel believes the launching of BHP Billiton's plan to buy Rio Tinto is likely to have huge implications for the world's steel and non-ferrous metal industries," the company said in a statement. "Due to this Baosteel is watching this closely and will continue to watch and comment on this matter as it develops." China has tried to flex its increasing muscle in the global steel industry repeatedly in recent years as it battled Rio Tinto, BHP and Brazil's Companhia Vale do Rio Doce -- the big three suppliers -- to keep iron ore prices down. In 2005, China's steel industry and government officials were furious after global prices went up by 71.5 percent in contracts that are set annually, and accused the big three of acting like a monopoly. After watching firms from other countries set the benchmark price in 2005, China attempted to take the lead in 2006. But that backfired after no deal was struck by the time the new contracts were due to start, and it reluctantly accepted a 19-percent rise that German and Japanese steelmakers agreed to around two months after the normal deadline. It finally had more success this year when Baosteel set the global benchmark price by signing on for a 9.5-percent increase with Companhia Vale do Rio Doce. Sun Yong, a Beijing-based analyst with Galaxy Securities, said China had tried to develop more domestic resources following the 2005 price hike but these have not been able to meet the demand from steel makers. "So it is now encouraging domestic firms... to buy into foreign miners," he told AFP. Australian commentators added to the waves of speculation with the suggestion that Rio Tinto could use British takeover rules to force BHP Billiton to "make a bid or disappear". "But the "put up or shut up" option has been available from the moment this proposal became public and it is an option Rio has so far happily avoided," Matthew Stevens wrote in The Australian. Shares in both companies gained on the Australian market Friday, with BHP Billiton adding 12 cents or 0.28 percent to 43.50 dollars and shares in Rio Tinto climbing 74 cents, or 0.51 percent, to 145.48 dollars. BHP and Rio already operate several joint ventures around the world, including the world-class Escondida copper mine in northern Chile. Both miners have iron ore operations in Western Australia's Pilbara region.
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