Observer says Chinese government will challenge BHPB Rio Tinto bid

China’s Central Government may be using its own new anti-monopoly law to legally fight BHP Billiton’s bid for Rio Tinto.

RENO, NV - 

UK-based newspaper, The Observer, reported Sunday that the Chinese government "is preparing to launch an unprecedented legal challenge" against BHP Billiton's proposed takeover bid for Rio Tinto.

Reporters Tim Webb and Richard Wachman suggested that Chinese Government will use its newly enacted anti-monopoly law to mount its first legal challenge to a foreign takeover. They claimed that it is part of a two-pronged attack on BHPB bid for Rio.

As reported on Mineweb's website Friday, the state-owned Aluminum Corp of China (Chinalco) teamed up with U.S. aluminum producer Alcoa to buy a 12% stake in Rio Tinto for US$14 billion. The stake is substantial enough to block a hostile bid by BHP, but by itself could not stop a friendly merger.

Speculation is increasing that BHPB will have to raise its $127 billion takeover offer after its two competitors bought the Rio stake. BHP has until February 6 to make a formal bid or wait for another six months. BHP must at least raise its bid to match the per share price that Chalco and Alcoa paid.

The Observer suggested that the move is based on Beijing's fears that a combination of Rio and BHP would control more than one-third of the world's seaborne exports of iron ore.

The world's largest steel manufacturer, China is heavily dependent on iron ore imports. The nation produced 7.2 million metric tons of stainless steel last year or more than one quarter of the total global output of 28 million metric tons, according to figures released by the China Iron Ore and Steel Association.

Chinese steel exports declined substantially during the second half of last year due to a series of reduction in export tax rebates.

The Observer reported that "Chinese embassies elsewhere in Europe and in the U.S. have also been seeking advice on ways of blocking the takeover." Mike Pullen of the law firm DLA Piper suggested that while Rio and BHPB don't have Chinese assets, China's Central Government may argue that the takeover would harm its domestic market.

In an unrelated development, Interfax-China reported that the China Iron and Steel Association is opposing Rio Tinto's decision to reduce long-term iron ore shipments to Chinese steel mills by 10%.

Chinese steel mills recently received notice from Rio stating that the company will postpone long-term iron ore contract deliveries due to hurricanes. Meanwhile, Rio recently announced it will ramp up long-term iron ore shipments to Korea's second largest steel maker, Hyundai Steel.

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Related Links ARTILCES:  Chinalco not interested in bidding war for Rio Tinto  Chinalco/Alcoa stake in Rio will make BHP think twice about a bid  Chinalco/Alcoa stake in Rio Tinto gives huge boost to markets  OTHER PAGES:  IRON AND STEEL AUSTRALASIA

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