Investors welcomed yesterday's decision by Australia’s corporate watchdog with BHP’s share price jumping as much as $2.40 (7%) to an intraday high of $33.40, while Rio Tinto rocketed $14.10 (17%) to an intraday high of $98.60
The decision comes after the ACCC raised concerns in August that the takeover bid would lower competitiveness in the global seaborne iron ore trade.
In a statement released yesterday the ACCC said it would not oppose the takeover bid as it was unlikely to substantially reduce competition under section 50 of the Trade Practices Act.
“While significant concerns were raised by interested parties in Australia and overseas, the ACCC found that the proposed acquisition would not be likely to substantially lessen competition in any relevant market,” ACCC chairman Graeme Samuel said.
The ACCC made its decision after carrying out a comprehensive review of the proposed acquisition, including market inquiries with a range of interested parties and consideration of internal documents of the merged parties.
Samuel said the proposed acquisition would combine two of the three major global seaborne suppliers of iron ore lump and iron ore fines.
“While barriers to market entry are high, involving significant sunk costs, market inquiries indicated there has recently been significant new entry and expansion in response to high demand for iron ore,” he said.
“This increase in supply, which has included new large-scale Australian operations with associated infrastructure, has frequently been supported by commitments or investments by steel makers.”
Samuel said the ACCC inquiries indicated the merged firm would be unlikely to limit its supply of iron ore given the uncertainty such a strategy would impose on the company’s profitability.
He also said the risk of limiting supply would encourage the expansion of existing and new suppliers, and steel makers would sponsor alternative suppliers.
“In relation to the supply of iron ore in Australia, market inquiries indicated that steel makers in Australia are unlikely to face higher iron ore lump and iron ore fines prices, based on a move from export parity pricing to import parity pricing,” Samuel said.
“The ACCC found that alternative suppliers are likely to be available to Australian steel makers, including alternative suppliers with established rail and port infrastructure in Australia.”
The proposed takeover has met strong opposition from steel makers in Europe and Asia while the European Commission has previously raised “serious doubts” about whether BHP’s takeover bid for Rio would be compatible with the European Union’s competition regulations.
The EC, which began in-depth investigations in July, suspended investigations in August pending further details from the mining giants.
The commission was expected to deliver its findings on November 11, however this has been set back to January 15 next year.
Shares in the mining giants cooled in late afternoon trade with BHP closing up $1.38 to $32.38, while Rio closed the day up $9.50 to $94.