The mining and commodities rout continues and with that both BHP Billiton and Rio Tinto shares are under pressure.
Adding insult to injury is the denial late last night by Rio Tinto that it was indeed back in talks with hostile suitor BHP. No surprise then, Rio shares have taken a corresponding knock today, paring back much of their rumour-fuelled gains of yesterday. At their worst, shares dived no less than 16.3 per cent in Australian trade — their biggest intra-day slide since the October 1987 crash.
And just yesterday revived merger hopes seemed so plausible, especially given BHP’s gloomy monthly production review. Why, then, the sudden turnaround?
Bloomberg is reporting of antitrust woes ahead for any potential tie-up:
Oct. 23 (Bloomberg) — European Union regulators told lawyers for BHP Billiton its $69 billion hostile bid for London-based Rio Tinto may break antitrust rules, two people close to the case said.
The European Commission, the 27-nation European Union’s antitrust regulator in Brussels, will likely issue the companies a so-called statement of objections, said the people, who declined to be identified because the regulator’s proceedings aren’t public. The objections will outline the commission’s concerns that the combined company’s share of the iron ore market may lead to price increases, the people said.
The decision may pressure BHP to sell assets and prove to regulators by Jan. 15 that the world’s biggest mining merger won’t restrain competition.
Analysts are saying the chances for a deal are deteriorating rapidly. Having had to contend with mass consolidation of the banking industry, it seems the EU is unlikely to find a BHP-Rio deal easy to digest. Its top priority will be defending the European steel industry.
Damien Hackett, an analyst at Canaccord Adams, tells Bloomberg:
I think BHP will end up with a list of asset divestments that they will find unpalatable.
Related links:
Rio Tinto in single biggest intra-day fall – FT
BHP warns of ‘volatile’ China slowing growth – FT
______