DealZone

Steeling for a fight

October 29, 2008

With commodity prices sagging in line with global growth, BHP Billiton’s mammoth, unsolicited bid for rival Rio Tinto might seem a lot less threatening. Certainly the price of the deal has a lot less wow in it, having fallen from $170 billion to under $70 billion in just a few short months. And in a few days, efforts to put the deal together will be one year old. Happy birthday.

Japan, woefully devoid of such resources, is home to two of the world’s biggest steel companies. Nippon Steel and JFE Holdings account for 6 percent of global steel output. The Nikkei business daily reports the country is stepping up pressure to block the deal.

The paper said Japan’s vice minister for international affairs at the trade and industry ministry will urge the European Commission to join it in blocking the merger, though a ministry official said there were no plans to make such a request.

It might seem petty to stir things up with global commodity prices in retreat. But unlike other industrial metals like copper, iron ore prices are not softening much. Analysts we polled said prices are likely to remain flat or rise modestly in 2009 contract talks, after the stunning hike of up to 96.5 percent in 2008.

And Japan’s outdated competition law makes it hard for the country to take any meaningful action to block the deal on its own. Its competition regulators ordered BHP to submit information on its bid for Rio last month, but BHP has refused to look at the request.

The EU commission has set a Jan. 15 deadline for making a final ruling on the deal, which has already been cleared by Australian and U.S. competition regulators. BHP’s share price is down 35 percent this year, and Rio’s is off 47 percent. By next year, the merger may be looking even less like a mighty move towards a monopoly and more like a necessity.

Deals of the day:

* Foster’s Group, the world’s second-largest wine group, said it has yet to receive any proposals on its wine business, whose future it is reviewing.

* U.S. private equity firm Ripplewood Holdings was picked as the favored bidder for the purchase of South Korea’s Daewoo Electronics from its creditors, leading creditor Woori Bank said.

* Sumitomo Mitsui Financial, Japan’s third-largest bank, is in talks to buy around a 2 percent stake in South Korea’s KB Financial for about 20 billion yen ($201.8 million), a person familiar with the matter said.

* Norwegian oilfield services group Sevan Marine said it was in talks with potential investors in its Sevan Drilling unit.

* Singapore sovereign wealth fund Temasek Holdings has agreed to a further investment of up to 12 billion rupees ($147 million) in Pakistan’s NIB Bank via a rights issue, NIB said.

* China Southern Airlines, the country’s largest carrier by fleet size, said it will invest more than 10 billion yuan ($1.46 billion) in Liaoning Airport Group to help fund its expansion.

* Germany’s BASF has tightened its grip on Ciba to nearly 70 percent of the share capital and voting rights of the specialty chemicals company.

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