China Is Serious In Blocking BHP-RIO Takeover

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By Rudi Filapek-Vandyck

The Chinese government is far from done yet in its opposition to BHP Billiton’s ((BHP)) proposed tie-up with fellow resources giant Rio Tinto ((RIO)). According to a newspaper story by Britain’s The Observer over the weekend, the Chinese government is “preparing to launch an unprecedented legal challenge” against BHP Billiton’s takeover plans.

The Observer reported high-ranking officials from the Chinese embassy in London have been approaching top City law firms over the past month for help in blocking the Rio Tinto takeover by BHP Billiton. Both companies have a dual share market listing in London and Sydney but contrary to BHP Billiton whose headquarters are in Melbourne, Rio Tinto is officially run from London too.

The newspaper also revealed that Beijing has recently drawn up framework legislation for China’s first competition law with the aim of using the yet to be introduced new legislation as a further challenge to the BHP-RIO takeover.

On Friday, Chinese government backed aluminium producer Chinalco and US partner Alcoa surprised the global investment community by announcing they had both acquired a 12% stake in Rio Tinto through a common venture called Shining Prospect. The shares were acquired in London and the announcement was made before the opening of the London stock market. (The 12% stake in UK shares represents about 9% of the dual-listed group according to the Australian Financial Review this morning).

Another British newspaper, the Sunday Times reported the Chinese government has put a USD120bn war chest at the disposal of Chinalco to battle with BHP Billiton over Rio Tinto.

The newspaper said the money would be made available through CIC (China Investment Corp), the sovereign wealth fund behind China’s recent investments in  Wall Street firms Blackstone and Morgan Stanley.

Chinalco and Alcoa are organising a press conference Monday afternoon in Sydney.

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