Rio Tinto’s management and board of directors continued to reject BHP’s offer as undervaluing Rio Tinto’s assets. BHP intends to take the offer directly to Rio Tinto shareholders once it receives regulatory approval for its offer.

The European Commission suspended its decision-making process when it did not receive requested information from BHP but did not elaborate further on its action. European steelmakers depend on seaborne iron ore as a key raw material, so the Commission can be expected to look closely at a merger that would place control of more than one-third of the world’s iron ore production in the hands of one company.

The Australian Competition and Consumer Commission (ACCC) had indicated that it found grounds for concern about the impact of a BHP/Rio Tinto combination on Australia’s iron ore and steel industries, while Japan’s Fair Trade Commission said it had asked for but not received information from BHP regarding the impact of a merger on iron ore market share.

However, the ACCC recently concluded that the proposed acquisition is “unlikely to substantially lessen competition under section 50 of the Trade Practices Act 1974.”

“This conclusion was reached after conducting a comprehensive review of the proposed acquisition, including extensive market inquiries with a range of interested parties and careful consideration of the internal documents of the merger parties,” ACCC Chairman Graeme Samuel said. “The merged firm would be a significant global supplier of a range of commodities, including iron ore, coal, bauxite, alumina, copper and uranium. In particular, the proposed acquisition would combine two of the three major global suppliers of iron ore. 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.”

The ACCC issued its preliminary views in a Statement of Issues published on August 22, 2008, identifying the supply of iron ore lump and iron ore fines as a potential competition concern.

“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,” Samuel 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. The ACCC considered whether the availability of alternative suppliers and the ability of steel makers to facilitate capacity expansions would be likely to undermine any incentive the merged firm may have to seek to influence the global supply and demand balance of iron ore in the future.

“The ACCC’s inquiries indicated that the merged firm would be unlikely to limit its supply of iron ore given the uncertainty it would face in relation to the profitability of this strategy and the risk that limiting supply would encourage expansions by existing and new suppliers as well sponsorship of alternative suppliers by steel makers. 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. 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,” said Samuel.

The ACCC statement said the commission also concluded that further market inquiries confirmed that the proposed acquisition is unlikely to substantially lessen competition in the remaining relevant markets.