South Korea regulator viewed BHP, Rio ore JV as full merger

SEOUL (BestGrowthStock) – A plan by BHP Billiton (BHP.AX: ) and Rio Tinto (RIO.AX: ) to form the world’s biggest iron-ore joint venture would have led to the same competition issues as a full merger between the two miners, South Korean regulators said.

The two companies on Monday ditched their plans for a $116 billion joint venture under pressure from global regulators worried about their dominance in the market for the key steel-making ingredient.

Their back-up option to share some iron ore infrastructure, referred to as “Plan B,” is also in doubt given the opposition that has emerged from regulators.

“The proposed alliance is limited to joint venture and production issue in its form, but it will eventually have the same effect of what a full M&A would have,” South Korea’s antitrust body, the Fair Trade Commission (FTC), said in a statement, referring to the collapsed joint venture plan.

The South Korean antitrust body is the first to give any detailed comment on its objections to the deal. The Australian regulator has refused to comment on its objections.

South Korea’s FTC said a joint production agreement would have reduced competition as the two firms would share the same cost structure, output volume and quality.

The venture would also more likely have curtailed output, than increased it, the FTC said while it was difficult to expect them to pass on reduced costs to buyers.

“It would be also difficult to expect a ‘firewall’ will work properly to block marketing information flows between the venture and its controlling stakeholders (BHP and Rio Tinto),” the FTC said, adding it had closely cooperated with regulators in Japan, China and Europe on the issue.

The failure of the deal was widely expected after European regulators indicated they would block the deal.

A joint venture between Rio Tinto and BHP, the world’s second and third largest iron ore miners, would have eclipsed Brazil’s Vale (VALE5.SA: ), the world’s largest supplier, and would have reaped more than $10 billion in savings from combining rail and port operations.

The back-up plan to share iron ore infrastructure and produce savings for about $5 billion would also have to face regulatory approval.

(Reporting by Miyoung Kim; Editing by Dhara Ranasinghe)

South Korea regulator viewed BHP, Rio ore JV as full merger