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BHP, the dual-listed Australian mining company, does not intend to notify Chinese anti-monopoly authorities as part of its antitrust clearance process, two sources close to BHP told dealReporter.
However, it is understood that the Chinese antitrust law which is set to be introduced on 1 August 2008 can act retrospectively and will have some opinions on the BHP/Rio Tinto mega-merger.
A source close to BHP said that Chinese antitrust approval is unlikely to be required for the deal to complete. He argued that although the new Chinese law may have the ability to act retrospectively, Chinese regulators would find it difficult to argue a “basis for jurisdiction.” The source explained that although BHP and Rio Tinto both export products to China, neither has any production there. “China is the client, but that is not enough to claim jurisdiction for the deal,” he continued.
A second source close to BHP said if antitrust clearance is obtained from those jurisdictions which BHP is currently intending to get clearance from as mentioned in its offer document, then the deal will go through. BHP announced on 6 February, that one condition of the 3.4 for 1 offer which it announced on that date will be regulatory clearance in Australia, the US, Canada, South Africa and the EU.
In the meantime, China is still in a process of constituting a threshold of monopoly notification which is supposed to be completed before the anti-monopoly law takes effect. A set of draft guidelines had been issued by the Legislative Affairs Office of the State Council in early April which involved gleaning public opinions. The public opinion soliciting ended on 12 April 2008. According to an official at the Legislative Affairs Office of the State Council, the office planned to file the threshold to the decision making level of the State Council for final approval by the end of May.
Xiaoye Wang, a director of the economic law department at the Chinese Academy of Social Sciences, and a participant in the constitution of China’s upcoming August Anti-Monopoly Law, argued: “If the BHP/Rio Tinto merger falls into the threshold, the acquirer needs to notify China’s anti-monopoly authority otherwise it will violate China’s law.”
The draft of the monopoly notification ruled three situations of monopoly: Firstly, all the participants of the merger had an aggregate global turnover of more than CNY 9bn (USD 1.29bn) in the previous fiscal year and two of the participants had aggregated turnover of more than CNY 300m (USD 42.9m) in China in the previous fiscal year. Secondly, all the participants of the M&A activity had an aggregated turnover of more than CNY 1.7bn (USD 243.2m) in China in the previous fiscal year and two of the participants had an aggregated turnover of more than CNY 300m (USD 42.9m) in China in the previous fiscal year. Finally, the M&A activity causes one of the participants occupying a market share larger than 25% in China. Obviously BHP/Rio Tinto merger falls into the third situation as both companies are the major iron ore suppliers of China steel makers, said Wang.
According to China’s Anti-monopoly Law, the enforcement body can trigger an investigation on the merger once there is a complaint made to the enforcement body. If the authority finds that the merger causes a monopoly, it can ask for terminating and dismissing the merger and fine the acquirer with 1% to 10% of its annual total sales in China.
Wang said if the involved parties are all not based in China, Chinese anti-monopoly authority can fine them via international lawsuit.
An official at the Anti-monopoly office of the Department of Treaty & Law of the Ministry of Commerce said he could not comment because he had not heard that BHP would go ahead with its proposed merger with Rio Tinto without notifying China.
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