Germans block Rio/BHP deal

14th Oct 2010 16:55

German competition authorities are set to block Rio Tinto and BHP Billiton's attempt to merge their Western Australian iron ore operations. The German Federal Cartel Office (FCO) says that its current intention is to prohibit the proposed iron ore joint venture. This makes it difficult to envisage the joint venture going ahead. Both companies say that they are disappointed with the decision and they expect formal notification next week."The parties continue to believe that the joint venture is pro-competitive and will increase the supply of iron ore. However, both BHP Billiton and Rio Tinto acknowledge the concerns expressed by some regulators and the obstacles to achieving clearance for the joint venture."Steel makers have complained bitterly that the deal would mean too much power is concentrated in the hands of one producer. It appears that the German steel lobby has been strong enough to influence the German authorities. Rio and BHP already control 40% of the world's iron ore production.The assets are in Australia's Pilbara region and could generate estimated annual savings of $10bn through a pooling of their infrastructure. No decisions about next steps have been taken by Rio or BHP at this stage and regulatory discussions continue.Rio has already been rumoured to be reassessing the deal and today's announcement did no harm to its share price, which rose 2.4% to £41.345. Rio is ploughing $230m into its operations at the Dampier Port in Western Australia to expand capacity. The expansion will result in an additional 5m tonnes/annum of capacity, taking total annual capacity for the Pilbara region to 230m tonnes/annum in the first quarter of 2012.Rio had previously said that it was going to invest $1bn in expanding the annual capacity of iron ore operations in the Pilbara to 330m tonnes.